# Using Percentage Change in Economics

### 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.