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| Handbook >> Elasticity >> Calculating Percentage ChangeWhat does the "percentage change" ( Standard Method ![]() ![]() ![]() ![]() We can use this formula to calculate the percentage change between any two numbers or quantities. As applied to economics, we typically present percentage change as follows where... ![]() ![]() ![]() ![]() ![]() ![]() ![]()
![]() ![]() ![]() ![]() ![]() ![]() ![]() Percentage change in income: ![]() ![]() ![]() ![]() ![]() ![]() ![]() Example ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() Now that we have calculated our percentage change in price and quantity demanded, we can measure the price elasticity of demand. ![]() ![]() ![]() ![]() ![]() E ![]() Midpoint Method Calculating percentage change as done above is often sufficient. However, you may notice that if we calculate the percentage change in price as (45 - 40)/40 x 100 we find that the percentage change is (-12.5 percent). In other words, it makes a difference if we look at the change as a rise or a fall; this is "end-point problem". To get around this problem, economists use the average of the two values as shown in the formulas below. ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() This formula is not as complicated as it may look; the only thing we have added is finding the average in the numerator to take care of the "end-point problem". ![]() ![]() ![]() ![]() This gives us an average of the two values; we can use this for any two values we may need to average including price, quantity, and income. Example To demonstrate how to find percentage change using the mid-point method, consider the following situation. Bill's income increased from $100,000 to $108,000 and his consumption of cruises increased from one cruise to two. Find the Income Elasticity of Demand. ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() | ||||||
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