Mr. Jones always buys gasoline at the corner station with his credit card. Now a new station (that does not accept credit cards) is built on the other corner and offers the same quality of gasoline for $.05 less per gallon. Is Jones irrational if he continues to buy gasoline at the old station?
a. |
Yes; such action would clearly violate the law of demand. If the price is lower across the street, Jones should go there. |
b. |
Not necessarily; he may think the ease and convenience of using the credit card is worth the extra cost. |
c. |
Yes; his actions imply that the law of diminishing returns does not apply to gasoline. |
d. |
Not enough information is given to determine if his actions are rational. |
Ans) Law of demand states that as price increases, quantity demanded decreases. And quantity demanded is the ability and willingness of a consumer to buy at a particular price. Here willingness states the value that person puts on the commodity.
Here, Mr Jone may not be violating the law of demand as the convenience that he gets from paying through the credit card also adds to the value.
Option b (Not necessarily....)
Mr. Jones always buys gasoline at the corner station with his credit card. Now a new...
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