Lesson 2: Pricing - Percent Increase or Decrease

   Constructing Knowledge

Business owners use both percent increase and percent decrease when setting prices for their products or services.

A percent increase occurs during the initial pricing of a product. This is called markup. Business owners may also mark up the prices of everything in their store to cover basic business costs and to make a profit. Percent increases also occur in almost all transactions made in Canada, in the form of GST.

GST
the Goods and Services Tax in Canada, a 5% tax on most goods and services

You will see the GST amount listed separately on receipts. The GST is an income source for the Federal Government. In some provinces (not Alberta), the GST is combined with a provincial sales tax to give HST (Harmonized Sales Tax). In these provinces GST may not be listed on receipts, but HST will.

Business owners will sometimes mark down (reduce) the prices of products in their stores as well. The most common type of markdown is a sale. However, there are instances where prices of products simply go down. This may occur when a piece of technology is replaced by a newer version. The older version's price will be permanently marked down.

To calculate percent increase or decrease:

Step 1: Multiply the percentage by the original price

and then

Step 2. for an increase, add the dollar amount of increase to the original price.

or

Step 2. for a decrease subtract the dollar amount of decrease from the original price.

   Multimedia

A video describing the calculation of a percentage increase in cost is provided.


EXAMPLE 1

The GAP sells socks for $2.50 per pair. Calculate the GST to be paid on the pair of socks and determine the final cost of the socks.

Solution


Step 1: Multiply the original price of the socks by the rate of GST.

GST amount = $2.50 × 5%
= $2.50 × 0.05
= $0.125

Remember that when working with money, answers should be rounded to two decimal places (to the nearest cent).


GST amount = $0.13 or 13 cents.

The amount of GST charged on the pair of socks will be 13 cents.

Step 2 : Add the GST amount to the original price.

final cost = $2.50 + $0.13
= $2.63

The final cost of the socks will be $2.63

   Multimedia

A video describing the calculation of a percentage decrease in cost is provided.


EXAMPLE 2

Harley's Hair shop is having a 25% off sale on hair coloring. She normally charges $90.00 for a single color. What is the sale price for this service?

Solution


Step 1: Multiply the original price of the service by the sales percentage

discount = $90.00 × 25%
= $90.00 × 0.25
= $22.50

Step 2: Subtract the sales amount from the original price

final cost = $90.00 - $22.50
= $67.50

The sale price for a single color is $67.50


Now, it is your turn! Complete the questions in your Chapter 2, Lesson 2 Practice Makes Perfect that refer to Percent Increase or Decrease.



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