Question

The general level of prices vary across time but they also vary across locations.  The table below provides the cost of living for several cities in United States. Use this table to answer the next two questions.

Cost of living comparisons in 2015*
National Average	Kansas City, MO	Dallas, TX	Atlanta, GA	Boston, MA	New York, NY	San Francisco, CA
100	94.1	106.3	96.8	160.7	168	242.6
*BestPlaces.net is one site that provides a comparison calculator that helps individuals identify how the cost of items such as food, housing, utilities, transportation and health in a specific location differ from the national base line of 100 and how costs vary across locations. Students interested in obtaining the most recent figures and interested in checking the cost of living in different locations are encouraged to visit the site.

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Question: Suppose Juan has three job offers.  He can earn $50,000 in Atlanta, GA; $70,000 in Boston, MA; or $100,000 in San Francisco, CA.  If Juan wants to maximize the purchasing power of his income, which offer should he accept?

	a.	​$100,000 in San Francisco, CA
	b.	​$70,000 in Boston, MA
	c.	​$50,000 in Atlanta, GA

Answer 1

If we consider National average as a base, then we need to convert $50,000 in Atlanta, GA; $70,000 in Boston, MA; or $100,000 in San Francisco, CA in terms of 100.

That means, in Atlanta, GA, 96.8 = $50,000

So, 100 = $51,652.9.

In Boston, MA, 160.7 = $70,000

100 = $43,559.4

And, in San Francisco, CA, 242.6 = $100,000

100 = $41,220.1.

So, from this above calculations, we can see that the purchasing power is highest in Atlanta, GA.

If Juan wants to maximize the purchasing power of his income, then he should accept:

c. $50,000 in Atlanta, GA.