Tony Notes That an Electronics Store Is Offering a Flat

question 68

Multiple Choice

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,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.
• E) opportunity costs.

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Definitions:

Compounded Annually

Refers to the process of earning interest on both the initial principal and the accumulated interest from previous periods, calculated once per year.

Future Value

The estimated value of an investment or loan including interest or dividends, at a specific future date.

Ordinary Annuity

A series of matching financial discharges made at interval ends throughout a fixed term.

Compounded Monthly

The process of adding interest to the initial amount of a loan or deposit on a monthly basis, causing the total amount to grow at an increasing rate.