In economics, how is the Per Capita Income of a country obtained by dividing the National Income, and which population base is used in this calculation?

Introduction / Context:
Per capita income is one of the most widely used indicators to compare the standard of living and level of development of different countries. It gives an average income figure per person by linking the overall National Income with the size of the population. This question tests basic understanding of how economists and policymakers calculate per capita income and what denominator they use in the formula. Knowing this concept is important for students preparing for competitive exams in economics and general studies.

Given Data / Assumptions:
National Income of a country is assumed to be known in aggregate form.We are interested in income per person, that is per capita income.We must identify which population base is used as the divisor.No distinction is made between working and non working people in the calculation.

Concept / Approach:
Per capita income is defined as the National Income divided by the total population of the country. National Income represents the total value of all final goods and services produced within a country in a year. To convert this aggregate into an average figure that reflects income per person, we divide it by the entire population, which includes children, elderly people, employed people, unemployed people, and those outside the labour force. The formula is simple but conceptually important because it connects overall production to the number of people sharing that income.

Step-by-Step Solution:
Step 1: Understand that National Income is an aggregate income figure for the whole country during a particular year.Step 2: Recognise that per capita income is an average income per person and not per worker or per household.Step 3: To get an average, divide the total National Income by the total number of people living in the country.Step 4: The appropriate denominator is therefore the total population of the country, which includes working and non working people.Step 5: Hence, the correct statement is that per capita income is obtained by dividing National Income by the total population of the country.

Verification / Alternative check:
We can verify this by thinking about what would happen if we used only the working population. In that case, the average would show income per worker, not income per person. That would give a different statistic that is useful for labour productivity analysis but not for measuring broad living standards. Similarly, dividing by the area of the country or by the volume of capital would not produce any meaningful per person measure. Government reports and international organisations like the World Bank and International Monetary Fund always define per capita income as National Income or Gross Domestic Product divided by total population, which confirms our answer.

Why Other Options Are Wrong:
Total working population: This would give income per worker, not per person, and would exclude children, elderly people, and others who are part of the population.Area of the country: Dividing income by geographical area gives income per square kilometre, which is a density type measure and not a per person indicator.Volume of the capital used: This would relate to capital productivity or output per unit of capital, which is a different concept and not per capita income.

Common Pitfalls:
Students sometimes confuse per capita income with productivity measures like output per worker or output per unit of capital. Another common mistake is to think that only the working population should be considered, because they directly produce income. However, per capita income is designed to reflect how much income is available on average for every person living in the country, regardless of whether that person is employed or not. Confusing these concepts leads to incorrect answers in economics questions and misinterpretation of development statistics.

Final Answer:
The Per Capita Income of a country is obtained by dividing its National Income by the Total population of the country.