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?
A)70 in Washington,D.C.and 42 in Austin,TX
B)140 in Washington,D.C.and 70 in Austin,TX
C)160 in Washington,D.C.and 72 in Austin,TX
D)210 in Washington,D.C.and 150 in Austin,TX

Question

Quizplus · Accepted Answer

To determine which pair of CPIs would make the two salaries have the same purchasing power, we need to calculate the cost-of-living index ratio. This ratio is calculated by dividing the CPI of the area with the higher salary (in this case, Washington, D.C.) by the CPI of the area with the lower salary (Austin, TX).

The cost-of-living index ratio for the first choice is 200/90 = 2.22. This means that it costs 2.22 times more to live in Washington, D.C. than in Austin, TX. To make the salaries equivalent in purchasing power, we need to adjust for this difference by multiplying the salary in Austin by the cost-of-living index ratio.

$90,000 x 2.22 = $199,800

Therefore, the equivalent salary in Austin with a CPI of 72 would be $199,800 / 72 = $2,775.

The closest matching pair of CPIs to this is 160 in Washington, D.C. and 72 in Austin, TX (as given in option C). Therefore, the best choice is C.

Elizabeth Just Received Her Ph