Measures of Economic Potential

1
Measures of Economic Potential
Making Sense of the Numbers _at_!_at_??
2
Economic Potential

• Economic Size
• Population
• GDP
• Real GDP
• Introducing PPP
• Cost of living
• International dollars
• PPP GDP
• Relative purchasing power PPP GDP / GDP

3
Rank the Size based on Purchasing Power Parity GDP

• China
• Japan
• India
• Germany
• Brazil
• Russia
• Canada
• Australia

4
Worlds 10 Wealthiest Consumers (GDP per Capita)

• PPP Method
• Luxemburg
• Bermuda
• United States
• Norway
• Liechtenstein
• Channel Islands
• Switzerland
• Denmark
• Ireland
• Iceland

• Atlas Method
• Bermuda
• Luxemburg
• Norway
• Switzerland
• United States
• Liechtenstein
• Japan
• Denmark
• Channel Islands
• Iceland

5
The Difference PPP Makes on a Per Capita Basis

• GDP/Capita
• Norway 36K
• Ireland 23
• Israel 17
• Iran 2
• China 1

• PPP GDP/Capita
• Norway 30
• Ireland 27
• Israel 19
• Iran 6
• China 4

6
Measuring Economic Potential An Example

• Assume that you want to measure the income of the
  top 10 of the population to determine if there
  is a sufficient market for your luxury product
• Also please calculate the bottom 10
• What statistics do you need?

7
Individual Economic Wealth

• GDP per capita
• PPP GDP per capita
• Income distribution
• People per household
• Family Income

8
US Income Distribution

• US GDP 11,004 billion
• Population 290.3 million (Economist, 2005)  
• Lowest 10 -- 1.5
• Lowest 20 -- 4.8
• Lower Middle 20 -- 10.5
• Middle Middle 20 -- 16.0
• Upper Middle 20 -- 23.5
• Upper 20 -- 45.2
• Highest 10 -- 23.5

9
Poverty in the US

• According to the Census Bureau, the proportion
  of Americans in poverty (living on less than
  18,104 a year for a family of four) rose to
  11.7

10
Country Level Analysis McDonalds Example

• Supposed that you are representing McDonalds in
  trying to assess the market potential of various
  countries in the world.
• Market research has determined that when the
  average household income reaches 10,000,
  households will purchase about 20 a year worth
  of McDonalds products Otherwise they will
  purchase only 2.
• What is the market potential of developing
  countries? (China vs. India case)