Question

You are offered two jobs, one in Chicago paying $67,000 and one in Dallas paying $58,000. The price index in Chicago is 110.8, and in Dallas it is 91.5. If real wages are the only consideration, then: a you would be indifferent between the two jobs because the real wages would be about the same (within 2%). b you would suffer from menu costs and be conflicted. c you would definitely take the job in Dallas because the real wage is higher there. d you would suffer from money illusion and be conflicted. e you would definitely take the job in Chicago because the real wage is higher there.

Answer 1

The correct answer is C. If real wages are the only consideration, then you would definitely take the job in Dallas because the real wage is higher there.

Step-by-step explanation:

Real wages refer to wages adjusted for inflation. The term real is in contrast to nominal wages.

A comparison of the development of real wages over time gives a more accurate picture of the development of an individual's wages or of the development of wage differences between different professions.

In the present case, to determine the real salary we must calculate the nominal salary divided by the price index of each city, and then multiply this result by 100 to obtain the real annual salary that would be obtained in each city.

Thus, in Chicago a real annual salary of $ 60,469.31 (67,000 / 110.8 x 100) would be obtained, while in Dallas a real salary of $ 63,387.97 (58,000 / 91.5 x 100) would be obtained in the same period, with which it would be more convenient to accept the job in Dallas.