Question 2 A graduate worked for a bank in Pittsburgh for a year after graduation and...

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Question 2 A graduate worked for a bank in Pittsburgh for a year after graduation and was then offered a similar job in New York City at the same wage. She pointed out that housing was more expensive in NYC so that even with the same salary, her standard of living would decline. The NY bank agreed to compensate her fully for the higher cost of living in NY. a. Show her budget constraint in NY compared to Pittsburgh assuming she spends all her income on two goods: housing and 'all other goods.' (Housing is measured in square feet and its price, rent, is $s per square foot. 'All other goods' is a composite commodity whose price is given by a suitable index, say, Py, and is the same in NY and Pittsburgh. If you like, denote 'housing' by X and 'other goods' by Y.) b. Show the new budget constraint if the NY bank compensates her by adding to her salary just enough to consume the exact bundle she consumed in Pittsburgh. c. Is she better off, worse off, or just the same after her move to NYC? Explain with reference to your diagram. Question 2 A graduate worked for a bank in Pittsburgh for a year after graduation and was then offered a similar job in New York City at the same wage. She pointed out that housing was more expensive in NYC so that even with the same salary, her standard of living would decline. The NY bank agreed to compensate her fully for the higher cost of living in NY. a. Show her budget constraint in NY compared to Pittsburgh assuming she spends all her income on two goods: housing and 'all other goods.' (Housing is measured in square feet and its price, rent, is $s per square foot. 'All other goods' is a composite commodity whose price is given by a suitable index, say, Py, and is the same in NY and Pittsburgh. If you like, denote 'housing' by X and 'other goods' by Y.) b. Show the new budget constraint if the NY bank compensates her by adding to her salary just enough to consume the exact bundle she consumed in Pittsburgh. c. Is she better off, worse off, or just the same after her move to NYC? Explain with reference to your diagram.

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a Budget Constraint in New York City NYC compared to Pittsburgh Pgh Lets denote Housing as X measure... View the full answer