Question

Explain why or why not each statement is consistent with the standard economic model.

6. After winning $500 in Vegas, Diana takes her friends, who normally split the check, out to a $400 dinner.

7. Credit card companies often offer new customers promotional 0% interest rates for the first month.

8. It is common for prices to end in 0.99.

Answer 1

Standard economic model - This model assumes that consumer behavior is rational. Consumers are fully aware of the options and the consequences. They have options to rank the options as per their preferences and choose the best among all available options.

6. This statement is consistent with the standard economic model as Diana is aware of her decision and based on his preference decided to take her friends for dinner.

7. Credit card companies are aware of the decision they took and know the consequences. Also, they had options for strategy and they choose one option of giving new customers promotional 0% interest rates and hence this statement is also consistent with standard economic model.

8. This statement is not consistent with standard economic model as there are no options for consumer to select and the prices are bound to end at 0.99