Living Standards, Poverty and Population: Question 7

Worked solution

Part (a): Ranking by real GDP per head alone

Comparing the two countries only on real GDP per head:

• Palmara: $18,000 per head
• Quenby: $11,000 per head

On this measure alone, Palmara would appear to have the higher living standards, since its real GDP per head is considerably higher than Quenby’s.

Real GDP per head is a widely used indicator of living standards because it is relatively easy to calculate from a country’s national income statistics and population, and it produces a single figure that can be compared directly between countries without needing extra data.

Part (b): Why the HDI could give a very different impression

• Life expectancy: Quenby’s average life expectancy (78 years) is far higher than Palmara’s (61 years). This suggests Quenby’s population is, on average, considerably healthier. Something real GDP per head does not capture at all, but which raises Quenby’s HDI relative to what its income alone would suggest.
• Years of schooling: Quenby’s average years of schooling (12 years) is double Palmara’s (6 years), pointing to a much more educated population. Since education is one of the HDI’s three dimensions, this also pulls Quenby’s HDI upward, even though Quenby’s real GDP per head is lower than Palmara’s.

Because the HDI combines income with these health and education outcomes, it could rank Quenby well above Palmara overall, even though real GDP per head alone ranks Palmara first.

Part (c): Discussing whether real GDP per head is more reliable

Case for the statement: Real GDP per head is calculated from standard national income accounts and population data, both of which are collected in broadly similar, well-established ways across countries. The HDI, by contrast, depends partly on estimates, such as expected years of schooling, that can be harder to measure accurately and consistently, especially in countries with limited statistical resources.

Case against the statement: Being easier to measure precisely is not the same as being a more reliable indicator of living standards. Real GDP per head only reflects average income; it says nothing about how long or how healthy people’s lives are, how educated they are, or how evenly that income is shared within the country. In this scenario, Palmara’s oil-driven income could be highly concentrated among a small part of the population, meaning its precisely measured $18,000 average may not reflect the living standards of most Palmarans at all, whereas Quenby’s much stronger health and education outcomes suggest a broader base of wellbeing across its population.

Overall judgement: Precision of measurement is a real advantage of real GDP per head, but it does not make the indicator more reliable for judging living standards as a whole. By combining income with health and education, the HDI is likely to give a fuller and more reliable overall picture of living standards for comparing Palmara and Quenby, even if some of its underlying data is harder to measure with the same precision as national income statistics.

Final answers

• (a) By real GDP per head alone, Palmara appears higher ($18,000 vs $11,000); real GDP per head is useful because it is straightforward to calculate and directly comparable across countries.
• (b) Quenby’s much higher life expectancy and years of schooling would raise its HDI, likely giving Quenby a better ranking on the HDI despite its lower real GDP per head.
• (c) Real GDP per head may be easier to measure precisely, but the HDI is likely more reliable overall, since it also reflects health, education and can reveal living standards that GDP per head alone (especially with concentrated oil income) would hide.