In Towneville, the average persons earns $15,000, and the CPI is 125. In Gutenberg, the average person earns $25,00 and the CPI is 225. Where would you choose to live, and why?

I would choose to live in Townville. This is because the real wage of $12,000 in Townville is greater than the real wage of $11,111 in Gutenberg.

Explanation:

Note: The correct amount which average persons earns in Gutenberg is $25,000, not $25,00 that is mistakenly written in the question.

The explanation to the answer is now provided as follows:

Where to live and why can be determined by comparing the real wages in Towneville and Gutenberg.

Real wage refers to the nominal wage that has been adjusted for inflation. The real wage can be calculated using the following formula:

Real wage = (Nominal wage / CPI) * 100 ……………. (1)

Where;

For Towneville:

Nominal wage = $15,000

CPI = Consumer price index, an inflation measure = 125

Substituting the values into equation (1), we have:

Real wage in Townville = ($15,000 / 125) * 100 = $120 * 100 = $12,000

For Gutenberg:

Nominal wage = $25,000

CPI = Consumer price index, an inflation measure = 225

Substituting the values into equation (1), we have:

Real wage in Gutenberg = ($25,000 / 225) * 100 = $111.11 * 100 = $11,111

Based on the calculations above, I would choose to live in Townville. This is because the real wage of $12,000 in Townville is greater than the real wage of $11,111 in Gutenberg.

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