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Living Standards, Poverty and Population: Question 3

Syllabus 5.1

Structured 10 marks

The table below shows economic data for two countries, Miravale and Oskerland.

Miravale Oskerland
Real GDP $300 billion $150 billion
Population 10 million 6 million
Average life expectancy at birth 63 years 80 years
Average years of schooling 7 years 13 years
Human Development Index (HDI) 0.62 0.83

(a) Calculate real GDP per head for Miravale and for Oskerland. State which country has the higher GDP per head. [3]

(b) State the three components that are combined to calculate the Human Development Index (HDI). [3]

(c) Using the data in the table, explain why comparing real GDP per head alone could give a misleading picture of which country has the higher living standards, compared with comparing their HDI values. [4]

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Worked solution

Part (a): Calculating real GDP per head

Real GDP per head is found using: Real GDP per head=Real GDPPopulation\text{Real GDP per head} = \frac{\text{Real GDP}}{\text{Population}}

Miravale: 300 billion10 million=300,00010=30,000 per head\frac{300\text{ billion}}{10\text{ million}} = \frac{300{,}000}{10} = 30{,}000 \text{ per head}

This is $30,000 per head.

Oskerland: 150 billion6 million=150,0006=25,000 per head\frac{150\text{ billion}}{6\text{ million}} = \frac{150{,}000}{6} = 25{,}000 \text{ per head}

This is $25,000 per head.

Comparing the two figures, Miravale has the higher real GDP per head ($30,000 versus $25,000).

Part (b): The three components of the HDI

The Human Development Index (HDI) is built from three dimensions of development, combined into a single index value between 0 and 1:

  1. Income, a measure of income per head (e.g. GNI per head), reflecting material living standards.
  2. Health. Measured using life expectancy at birth, reflecting how long people are expected to live.
  3. Education, measured using indicators such as expected years of schooling and mean years of schooling, reflecting access to education.

Part (c): Why GDP per head alone can be misleading

Real GDP per head measures only the average income available per person in a country. It does not directly capture:

  • how healthy the population is,
  • how educated the population is, or
  • how evenly income is distributed among the population.

In this data, Miravale has the higher real GDP per head ($30,000 vs $25,000), which taken alone would suggest Miravale offers the better living standards. However, Miravale’s life expectancy (63 years) and average years of schooling (7 years) are both far lower than Oskerland’s (80 years and 13 years). Because the HDI incorporates these health and education outcomes alongside income, Oskerland ends up with the higher HDI (0.83 vs 0.62).

This shows that relying on GDP per head alone could give a misleading, overly narrow picture: it hides the possibility that Miravale’s higher average income is not translating into longer lives or more years in education for its population. Perhaps because that income is spent on things other than healthcare and education, or is unevenly distributed. The HDI, by combining all three dimensions, gives a broader and arguably more meaningful comparison of living standards between the two countries.

Final answers

  • (a) GDP per head: Miravale = $30,000; Oskerland = $25,000. Miravale has the higher GDP per head.
  • (b) The HDI combines income, health (life expectancy) and education (years of schooling).
  • (c) GDP per head alone says nothing about health or education; despite Miravale’s higher GDP per head, Oskerland’s far higher life expectancy and schooling give it the higher HDI, showing GDP per head alone can be misleading about overall living standards.