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[Alex] We all know that there are
rich countries and poor countries.

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The United States?

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It's one of the richest countries
in the world

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with one of the highest
standards of living.

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The Central African Republic

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is one of the poorest countries
in the world.

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Mexico?
It's somewhere in between.

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But just how big
are these differences

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between the rich
and the poor countries?

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And how do we measure
these differences?

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We're going to measure
the differences in living standards

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by looking at Real GDP per capita.

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That's a country's
Gross Domestic Product

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divided by its population.

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Real GDP per capita captures

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the average individual's command
over goods and services --

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their purchasing power.

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Or, put another way,
how much stuff,

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which we'll picture here
using a basket of groceries,

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can an average person
buy in a year?

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So, let's start with
the Central African Republic.

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This is a small,
landlocked nation in Africa.

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It's currently suffering
under a civil war.

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It's probably the poorest country
in the world.

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In the CAR,
an average person can buy

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just six baskets of stuff
in a year.

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Now let's consider Mexico,

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a country you might be
a little bit more familiar with.

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If the average person in the CAR --

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if they can buy six baskets
of goods in a year,

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how many baskets do you think

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that the average person
in Mexico can buy?

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Take a moment, take a guess,
make a mental note of it.

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We'll come back to that.

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Now let's look at the largest
of the developed nations,

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the United States.

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How many baskets of goods
do you guess

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that the average American
can buy in a year?

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Okay, have you got your guesses?

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Here are the answers.

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In our depiction,
each basket is worth

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$100 of buying power per year.

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Using data from
the International Monetary Fund,

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Real GDP per capita --
in the Central African Republic --

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it's about $600 per year.

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Just six baskets.

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Real GDP per capita in Mexico,
in contrast, is $17,800 per year.

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Or 178 baskets.

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Both of these numbers, by the way,

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have been converted to dollars
by taking into account

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differences in prices
in these countries.

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These are so-called
purchasing power parity conversions --

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the most accurate way we know
to compare living standards

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across different countries.

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Now let's look at Mexico
and the CAR again.

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The average person in Mexico --

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they can buy 29 times
as much stuff in a year

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as the average person
in the Central African Republic.

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What about the average American?

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Well, this is how much
the average American can buy --

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545 baskets.

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That's three times more
than the average person in Mexico,

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and 90 times more
than the average person

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in the Central African Republic.

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So, when we're talking
about differences in wealth

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between countries --
these are not small differences --

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but regularly, on the order
of 10, 20, 50,

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sometimes 100 times more
in one country than in another.

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And countries that we might
sometimes lump together in our mind

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as being poor, like Mexico
and the Central African Republic --

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they're not nearly
in the same league.

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The prosperity in Mexico --

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it's much closer
to the United States than it is

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to the truly destitute nations,
such as the Central African Republic.

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These huge disparities in wealth,
have they always existed?

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Are countries converging?
Are they diverging?

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Is it getting better or worse?

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Are some countries catching up?

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These are all topics
of some of our upcoming videos,

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so get ready to dig in.

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[Narrator] If you want
to test yourself,

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click "Practice Questions."

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Or, if you're ready to move on,

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you can click
"Go to the Next Video."

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You can also visit MRUniversity.com

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to see our entire library
of videos and resources.

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♪ [music] ♪