Question

Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power

Answer 1

Answer:

CPI washinton 100

CPI Austin 45

or

CPI Washinton 222

CPI Austin 100

Explanation:

We need a CPI that equalise the salary of 200,000 in Washington DC and the 90,000 in Austin Texas

if Washinton DC is the base, and their CPI is 100

how much does the CPI of Austin needs to be to make 200,000 in Washinton equal to 90,000 in Austin?

$200,000\frac{CPI_a}{100} = 90,000$

90,000/200,000 x 100 = CPI

CPI = 45

A CPI of 100 in Washinton

and a CPI of 45 in Austion make the two salaries have the same purchasing power.

If we use Austin as a base:

100/45 x 100 = 222.22222

Then the CPI for Austin is 100

and the CPI for Washinton 222