Tom and Al are the only two members of a household. Each gets satisfaction from three things:

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Tom and Al are the only two members of a household. Each gets satisfaction from three things: his income, his safety at work, and his income relative to his roommate's income. Suppose Tom and Al must each choose between two jobs: a safe job that pays $100 per week and a risky job that pays $130 per week. The value of safety to each is $40 per week. Each person evaluates relative income as follows: Having more income than his roommate provides the equivalent of $30 per week worth of satisfaction; having less implies a reduction of $30 per week worth of satisfaction; and earning the same income as his roommate means no change in satisfaction. Will Tom and Al choose optimally between the two jobs?
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Principles of Economics

ISBN: 978-0073511405

5th edition

Authors: Robert Frank, Ben Bernanke

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