I don't think it's false advertising or a legal, ethical, or etiquette issue. It's sales, pure and simple. I overvalue at my job all the time knowing that I can negotiate down but not up. Not quite the same situation since presumably there's no negotiating in scenario you posted, but the advertiser has decided that $500 is a good price to claim the product is (subjectively) worth.
You might think they are crazy, but that's your judgment call and you can just decide not to buy. That's the risk they take if they overshoot on what a consumer believes the value is. Not rude, just bad business.