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.

Question

Quizplus · Accepted Answer

There could be other factors that influence Jones' decision, such as the convenience of using a credit card. Furthermore, the cost savings of $.05 per gallon may not be significant enough for Jones to go out of his way to the new station. Therefore, it is possible that Jones' decision is rational.

Mr Jones Always Buys Gasoline at the Corner Station with His