Question

You are offered two jobs, one in Richmond, Virginia, paying $67,000, and one in San Diego, California, paying $79,000. The price index in Richmond is 104.5; in San Diego it is 132.3. If real wages are the only consideration, then you would

aa. likely take the job in Richmond because there is a Federal Reserve bank there and it would control inflation in the area.

a. likely take the job in San Diego, because better weather is directly correlated to real wages.

b. definitely take the job in San Diego because the real wage is higher there.

c. be indifferent between the two jobs because the real wages would be about the same (within 2 percent).

d.definitely take the job in Richmond because the real wage is higher there.

Answer 1

Real wages of R and S should be calculated first, considering the base year has 100 price index.

Real wages of R = (payment / price index) × 100

                           = ($67,000 / 104.5) × 100

                           = $64,114.83

Real wages of S = (payment / price index) × 100

                           = ($79,000 / 132.3) × 100

                           = $59,712.77

Higher real wages should be considered, which is R. Therefore, R’s job should be taken.

Answer: d