Question

We declare Sullivan County as the ‘base’ county.

Clarion, $20,500

Sullivan, $18,100

Westmoreland, $24,000

Allegheny, $28,700

What is the price index in Clarion county? In Westmoreland county? In Allegheny county?

If you made $50,000 per year in Allegheny county, how much would you need to make in Clarion county to have the same purchasing power as you have with $50,000 in Allegheny county?

Answer 1

Price Index = Price / Base price * 100

So , for Clarion = (20,500 / 18100) * 100 = 113.26%

For Westmoreland = 24000/18100 * 100 = 132.60 %

For Allegheny = 28700/18100 * 100 = 158.56%

Purchasing power = 1 / price index * 100

Therefore PP in Clarion = 1/113.26 * 100 = 0.88$

PP in Allegheny = 1/158.56 * 100 = 0.63$

So each dollar has these puchasing powers . In Allegheny if I get 50,000$ then my purchasing power is 50,000 * 0.63 = 31,500$

In Clarion if I want to keep may purchasing power same at 31,500$ then I need to earn = 31,500 * 0.88 = 35,796$