For each city across the U.S., economists construct a price index for a similar basket of goods. In Los Angeles the index is 127.3 and the index for Dallas is 94.8
If you have been offered $137,000 for a job in Los Angeles and $117,000 for a similar job in Dallas, which job affords you the highest purchasing power of the bundle of goods in the price index? Use the Los Angeles value as the base.
Real value[Dallas] = 127.3($117,000)/94.8 = $157,111. This exceeds the real $137,000 salary for the job in Los Angeles. The Dallas job provides higher purchasing power.
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