Use the Following to Answer Questions

question 52

Multiple Choice

Use the following to answer questions:
Figure: Differences in Risk Aversion
-(Figure: Differences in Risk Aversion) Look at the figure Differences in Risk Aversion. Which of the following statements is CORRECT?

• A) Ernest will gain more utility from insurance than will Salvatore.
• B) Salvatore will gain less utility from an increase in income than Ernest but will lose more utility than Ernest from a fall in income.
• C) Ernest is more risk-averse than Salvatore.
• D) If either Ernest or Salvatore buys insurance, adverse selection will occur.

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Definitions:

Quarterly Estimated Payments

Payments made to the IRS by self-employed individuals or entities that anticipate owing tax of $1,000 or more, paid in four equal installments throughout the year.

Estimated Payment

refers to tax payments made in advance throughout the year, based on an estimate of the taxpayer's annual income.

Corporate AMT Exemption

An exemption that prevents corporations from having to pay the Alternative Minimum Tax up to a certain threshold of income.

AMT

Alternative Minimum Tax, a separate tax system in the United States designed to ensure that certain taxpayers pay at least a minimum amount of tax.