B Purchased a Tractor Trailer from His Mother for Its

question 56

Multiple Choice

B purchased a tractor trailer from his mother for its fair market value of $2,100.She had used the trailer exclusively for business purposes.At the time of sale, the mother's basis in the vehicle was $5,500.What is B's recognized gain or loss if he immediately sells the vehicle for $3,200?

• A)($3,400)
• B)($2,300)
• C)$0
• D)$1,100

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Definitions:

Normal Good

A good for which demand increases as the income of the consumer increases, and vice versa, holding all other factors constant.

Income Effect

The change in consumer demand for goods and services induced by a change in income, affecting the purchasing power of the consumer.

Substitution Effect

The change in consumption patterns due to a change in relative prices, prompting consumers to substitute one good for another.

Giffen Good

A rare type of good whose demand increases as its price increases, violating the basic law of demand, typically due to the absence of close substitutes.