Correct Option
The correct option is 1 and 3 only.
Explanation
Average Income, technically known as Per Capita Income, is a fundamental economic metric used to compare the economic status of different countries. It represents the mean income of the people in an economic unit such as a country or city. While useful for broad comparisons, it is a statistical average that does not account for the internal distribution of wealth.
Statement-wise Analysis
- Statement 1 is Correct: Average income is calculated by dividing the total income of the country (National Income) by its total population. This metric is widely used by international organizations like the World Bank to classify countries into income categories (e.g., Low, Lower-Middle, Upper-Middle, and High Income).
- Statement 2 is Incorrect: Two countries with the same average income can have vastly different income distributions. For example, Country A may have an equitable distribution where most citizens earn near the average, while Country B may have the same average driven by a few extremely wealthy individuals and a large impoverished population. Therefore, average income does not guarantee or reflect equitable distribution.
- Statement 3 is Correct: A primary limitation of using average income as a development indicator is that it fails to reveal disparities. It treats the population as a homogenous group, masking the gap between the rich and the poor. It does not provide insight into the economic well-being of the median citizen.
Key Takeaway
Average Income (Per Capita Income) indicates the average share of income per person but ignores income inequality. Consequently, it must be supplemented with other indicators (like the Gini coefficient or Human Development Index) to assess true development and economic welfare.