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Per capita is a Latin term that roughly translates as by heads. This may be better understood as per person or per individual unit, and it usually refers to a group of people and some form of income either earned or spent. It’s essentially a way of taking a figure like total spending, and dividing it up by the number of people being counted in order to derive an average or mean. The term has many applications and people might note its use in financial and economic reports, in the social sciences, in education and elsewhere.
To figure out the per capita income of the population of a city, for example, it would be necessary to find out the total earnings for residents of that city and then divide it by the population. In a tiny city of 10 people with total gross earnings of $200,000 US Dollars (USD), the per capita income would be $20,000 USD — $20,000 x 10 = $200,000 USD.
The matter is slightly more complicated, since all members of the hypothetical small city might not be workers. A few could be kids, stay at home parents, or retirees. In this case, a more accurate per person income is derived when all non-workers are excluded. If only five people in the city actually work, income jumps to $40,000 USD per person or worker. When calculating any by the head average, it’s important to figure out whether it makes sense to exclude some of the population.
For example, a school district might want to publish a financial report on how much money they’re spending per student. The population or “group of heads” becomes the students that attend in the district and it excludes other people who aren’t students. Total spending would be divided by number of students to determine a per capita rate.
Another way this term can be used is in legal settings having to do with inheritance. If a person wants to leave an estate to be equally divided between survivors, he or she may use the term per capita to designate an even split between all parties. Less intimate uses include examining things like the gross domestic product of a whole country and determining the GDP for each person.
Averages are useful for getting basic ideas about mean spending or earnings but they aren’t always the most reliable measure. They cause all figures to look the same when, in reality, there is a great deal of variation. From a simple mathematical standpoint, there are almost limitless ways for five or 10 people to make a combined income of $200,000 USD. Four of them could make $1 USD per year while the fifth makes $195,000 USD.
A per capita report of yearly earnings in this scenario wouldn’t truthfully reflect an average income. While this measurement can be useful for some things, other measures are needed to understand central tendencies of data. Evaluating measurements of variation are equally important to discover how per person data differs.