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ashforgmat
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Your overall goal in this question (as in most DS questions) is to show that the statements are insufficient - that they allow both a yes and no.
One insight that can make your life easier here is to translate the question: in the move from 5 and 3 to 4 and 4, we are actually swapping one notepad for one marker. So the question is asking "can you swap one for one and still stay under $10?"
This angle allows you to focus on the difference between the two prices, and compare that to the distance of the total from $10.
Stat. (1): less than $1 is a very broad definition. We can have the notepads at $0.5 each, so 5 notepads are $2.5, and have the markers cost $2.5, so that 3 markers cover the remaining $7.5 up to $10. In this case, swapping one notepad for one marker will definitely push you over $10, as the the procedure means adding a difference of 2.5-0.5 = $2 to your total, pushing the costs up to $12. So the answer in this scenario is no. But it is always no? Can you find a counter example where the answer is yes?
To find a counter example, two things need to happen:
a. The difference between notepad and marker needs to be made smaller.
b. the total needs to be under $10, so that the added difference due to swapping will not push you over $10.
Try notepad = $0.9 (so that 5 notepads are $4.5), and marker = $1.5, (so that 3 markers cost $4.5). The total in this case would be 4.5+4.5=$9, which would allow you to squeeze another $0.9 notepad in (violating the 5 and 3 demand), but that is easily fixed with a little tweak: slightly increasing notepads to $1.55 each brings the total up to $9.15.
In this case, swapping one notepad for one marker means adding a difference of 1.55-0.9 = $0.65 to the total, which, when added to the $9.15 total, will still be under $10. So the answer is "yes".
It takes a while to think through the reasoning and find these examples, but they satisfy both stat. (1) and (2), meaning that both statements, alone or combined, allow both a yes and a no answer. Thus, the answer is E.
