Question

Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50 that it is a good offer, but if he wants to buy something with a price of $500 it is not a good offer. This is an example of:________.
A. inconsistent reasoning; saving $20 is saving $20.
B. the proper application of the cost-benefit principle.
C. rational choice because in the first case he saves 40% and in the second case he saves 4%.
D. marginal cost equals marginal benefit thinking.

Answer 1

Answer:

The correct answer is A) inconsistent reasoning; saving $20 is saving $20.

Explanation:

Tony is making an uninformed decision or more strictly, his reasoning is inconsistent. A flat discount of $20 is applicable to all products. Whether he  buys something that is worth $50 or $500, his savings would still be the same.

All other options are wrong. If e.g. he this was a flat 20% discount, his savings would have been much different. e.g. 20% of $50 is $10 while it equals to a $100 for a $500 product.

At this point, he would have to make rational decision on what he really needs to buy.