Consider the Following Hypothetical Scenarios

question 65

Multiple Choice

Consider the following hypothetical scenarios:
Scenario A: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45.The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for $160 at another store, located about a 20-minute drive away.
Scenario B: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45.The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for $30 at another store, located about a 20-minute drive away.
Based on standard economic theory, under which scenario would you make the 20-minute trip to the other store?

• A)Scenario A because the pair of jeans is a very expensive item and $15 saving is quite substantial
• B)Scenario B because a $15 saving amounts to a substantial discount (about 33 percent)
• C)in either scenario if I think a $15 savings is worth the 20-minute trip
• D)in none of these scenarios if I think the $15 saving is not worth the 20-minute trip
• E)C and D are correct answers.

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Definitions:

Disinflation

A slowdown in the rate of inflation, indicating a decrease in the pace at which prices are rising.

Deflation

A decrease in the general price level of goods and services, often indicating a reduction in the supply of money or credit in the economy.

Stagflation

A situation in an economy where inflation rates are high, economic growth rate slows, and unemployment remains steadily high, presenting a challenge to economic policy.

Aggregate Output

The total value of all goods and services produced in an economy within a specific time period.