How to Calculate Economic Ratios

A calculator can help you find the quotient of two economic variables.

Economic ratios are indicators showing the connection between two economic variables. The GDP per capita for example is an economic ratio, as it shows the relation of the gross domestic product and individual citizens. Price elasticity of demand is also an economic ratio, connecting the percentage of demand change and the percentage of price change. Calculating economic ratios is quite easy, as the procedure remains largely the same with basic school find-the-ratio tasks: doing the division of the two variables.

Instructions

1. Get financial and demographic information only from reputable resources. The value of the two variables will determine their quotient (ratio), so be sure you work with correct and updated data. The U.S. Census Bureau, the Department of the Treasury, the International Monetary Fund and the CIA World Factbook are examples of reliable sources.

2. Replace the dividend (x) and divisor (y) variables with the figures you retrieved. If you are unsure which number goes where, remember that you try to find how an amount (x) is distributed among a group (y) or how a variable (x) is affected by another variable (y). For example, when calculating the U.S. GDP per capita, the nominal GDP -- $14.1 trillion according to the IMF for 2010 -- replaces the dividend variable and the population -- 308,745,538 for 2010 with data from the Census Bureau -- replaces the divisor.

3. Use a calculator to do the division. If you are not interested in absolute accuracy, round up the variables to avoid dealing with unnecessarily long figures. For example, instead of using a 33.8975 percent increase on price when calculating the price elasticity of demand, round it up to 33.9 or even 34 percent.

4. Determine what the quotient represents. For example, the figure of the U.S. GDP per capita represents U.S. dollars, while you must express the ratio of arable land per farmer in units of area (acres for example). It is possible that a ratio can be merely a theoretic economic indicator, such as the elasticity of supply.

Tips & Warnings

• Do not oversimplify the variables. For example, say that the U.S. has 310 million residents on the aforementioned example and you risk coming up with an inaccurate ratio.

References

• The Math League: Ratio and Proportion
• International Monetary Fund: Report for Selected Countries and Subjects (Nominal GDP in Current Prices)
• U.S. Census Bureau: Main Page

Resources

• Environmental Defence Fund: "Economic Ratios and Employment Multipliers"; Seyi Fayanju; Feb 2010