# Using Percentage Change in Economics

#### Economists use percent change to understand how much a variable has increased or decreased.

### For example:

Paula and Mandy both got raises:

- Paula earned $100,000 per year and now earns $102,000.
- Mandy earned $20,000 per year and now earns $21,000.

Who got a bigger raise?

Paula's raise was $2000; Mandy's raise was $1000. But as a **percentage change** Mandy had the larger raise.

## How do I calculate percentage change?

The percentage change between two numbers (or values, as numbers are often referred to in economics) can be calculated in two steps:

Step 1: Subtract the starting value (number) from the ending value (number). This is the *change*.

`"Ending Value" - "Starting Value" = "Change"`

Step 2: Divide the *change* from step 1 by the starting value and multiply by 100. This is the *percentage change.*

`"Change"/"Starting Value" xx 100 = "Percentage Change"`

That's all there is to it! It doesn't matter whether you're comparing changes in wages, prices, sales, stock prices, or output, the process of calculating percentage change is the same.

## Why should I calculate percentage change?

Often economists are interested in relative comparisons because it's much more meaningful than a comparison of absolutes.

- For example, Mandy had a greater relative pay increase compared to Paula.
- Similarly, economists use percentage change to measure economic growth of countries, changes in prices and changes in employment. This allows economists to compare changes that start from a different base level.

## Where is percentage change used in macroeconomics?

**Inflation rate**- Economists use changes in the consumer price index (CPI) to measure how quickly prices rise over time (note: if the economy is experiencing a period of negative inflation we call that*deflation*)

**Rate of economic growth**- Economists use changes in real gross domestic product (real GDP) to measure economic growth.

### ➜ Note

Almost any macroeconomic measurement made can be tracked over time. We use the*percentage change*formula to calculate the rate at which these measures change through time.

## Where is percentage change used in microeconomics?

In **microeconomics** percent change is used to measure change in price, quantity, revenue, profits, wages, income, and costs. All use the same *percentage change* formula:

`(X_2-X_1)/X_1 xx 100 = "Percentage Change"`

where `X` could be price, quantity, wage, cost, profit, etc.

### ➜ Note

Whether we are dealing a simple percent change or a more complicated formula like elasticity, the operation for calculating a*percentage change*does not change.