What do we use averages ? …

The use of average is to compare income because it makes comparison between countries of different sizes easily. It removes that toughness or any kind of difficulty which is faced during calculation of per capita income.

It hides the differences in the distribution of income which is its limitation. As by calculating the total income it is not possible to get the average income of total people. That is the reason that the average income of the country is being compared which is said to be the total income which is divided by its population.

Limitations of using averages are as follows:

a) It can be used for comparison and it hides disparities so it is not suitable for any country in this way.

For example- There are two countries A and B, where the per capita income may be the same

Country A: Most of the people have similar income

Country B: Few people are extremely rich while most of the people are extremely poor but the average comes out to be same as country A

So mostly people would like to live in country ‘A’ as it has more equitable distribution than country B.

b) Even though averages are useful for comparison but they hide disparities.

Example: The literacy rate of a country does not differentiate between its different states, certain states (such as Kerala) may have higher literacy rate while some may have a lower literacy rate (like Bihar) but when we take the country’s average, this difference is not visible.