Basic Facts of Wealth

Video created by Alex Tabarrok on Mar 17, 2016

    The latest from our MRUniversity series:


    We know that there are rich countries, poor countries, and countries somewhere in between. Economically speaking, Japan isn’t Denmark. Denmark isn’t Madagascar, and Madagascar isn’t Argentina. These countries are all different.

    But how different are they?

    That question is answered through real GDP per capita—a country’s gross domestic product, divided by its population.

    In previous videos, we used real GDP per capita as a quick measure for a country’s standard of living. But real GDP per capita also measures an average citizen’s command over goods and services. It can be a handy benchmark for how much an average person can buy in a year -- that is, his or her purchasing power. And across different countries, purchasing power isn’t the same.

    Here comes that word again: it’s different.

    How different? That’s another question this video will answer.

    In this section of Marginal Revolution University’s course on Principles of Macroeconomics, you’ll find out just how staggering the economic differences are for three countries—the Central African Republic, Mexico, and the United States.

    You’ll see why variations in real GDP per capita can be 10 times, 50 times, or sometimes a hundred times as different between one country and another. You’ll also learn why the countries we traditionally lump together as rich, or poor, might sometimes be in leagues all their own.

    The whole point of this? We can learn a lot about a country’s wealth and standard of living by looking at real GDP per capita.

    But before we give too much away, check out this video -- the first in our section on The Wealth of Nations and Economic Growth.

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