Cambridge IGCSE Economics 0455
Syllabus points
- Explain how living standards are measured and compared.
- Explain the components and use of the Human Development Index (HDI).
Measuring living standards
Living standards mean how well-off people are. A common measure is real GDP per person — total output divided by population, adjusted for inflation. Higher GDP per head usually means higher material living standards. But GDP alone misses many things, such as health, education, leisure, inequality and the environment.
Key definitions
| Term | Definition |
|---|---|
| Real GDP per capita | Total output per person, adjusted for inflation. |
| Standard of living | The material and non-material wellbeing of people. |
| Human Development Index (HDI) | A wider measure combining income, health and education. |
The Human Development Index (HDI)
Because GDP is incomplete, the HDI combines three indicators:
- Income — GDP per person (material living standards).
- Health — life expectancy at birth.
- Education — average and expected years of schooling.
The HDI gives a score between 0 and 1 — the closer to 1, the higher the level of human development. It gives a fuller picture than GDP alone.
GDP per head measures material wealth; HDI adds health and education for a fuller picture of living standards.
Limitations of GDP as a measure
- Ignores inequality — averages hide the poor.
- Ignores non-marketed activity and the informal economy.
- Ignores pollution and resource depletion.
- Says nothing about leisure or the quality of goods.
Worked example
Two countries have the same GDP per person, but Country A has higher life expectancy and better schooling. Its HDI is higher, showing better overall living standards even though incomes are equal. This is why the HDI is preferred to GDP alone when comparing development.
Common exam mistakes
- Treating GDP per head as a perfect measure of wellbeing.
- Forgetting the three components of the HDI.
Exam technique
Explain GDP per head, then use the HDI (income, health, education) and GDP's limitations to give a balanced answer on measuring living standards.
Quick revision
- Living standards measured by real GDP per capita.
- HDI = income + health (life expectancy) + education.
- GDP ignores inequality, pollution and non-market activity.