Which of the following options best describes the primary cause of the per capita income decline?

Correct — B. Per capita income is national income divided by population, so the denominator moves it as surely as the numerator does.

When population grows faster than income, the same national income — or even a larger one — is shared among more people, and income per head falls.

That is the standard account of a per capita decline in a growing economy, and it is what option (b) states: the rise in population growth, not the size of the cake.

Why the others are wrong

• (a)
  Equitable distribution of income — Equitable distribution changes who receives the income, not how much exists per person. Per capita income is an average, and redistribution leaves an average untouched.
• (c)
  Decline in the population growth — A decline in population growth pushes the other way. A slower-growing denominator raises income per head, other things being equal.
• (d)
  Decline in the gross domestic product — A falling GDP does lower per capita income, but by shrinking the numerator. SSC's key reads the decline as the population effect, where output holds or grows while population grows faster.

Per capita income = national income ÷ population. Two levers, and a question on it asks which one moved.

Raise the numerator and per capita income rises. Raise the denominator faster than the numerator and it falls, however healthy the growth figures look.

This is why a country can report years of rising output and still show flat income per head — and why per capita income, not total income, is the figure used when countries of different sizes are compared.

Key facts

• Per capita income is national income divided by the population of the country.
• Per capita income can fall even while total output rises, if population grows faster than output.
• Redistribution changes the spread of income across households, not the per capita average.
• GDP measures output produced within a country's borders in a year, before any adjustment for population.

Common traps

• Treating per capita income as a measure of how equally income is shared
• Forgetting that population sits in the denominator and can move the figure on its own

No directly related past PYQ was found.