Anton, Bettina, and Caleb Form Cage Corporation

question 55

Essay

Anton, Bettina, and Caleb form Cage Corporation. Each contributes appreciated property worth $10,000 for one-third of the Cage stock. Before the exchange, Anton arranges to sell his stock to Darma as soon as he receives it. Does Sec. 351 apply?

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Definitions:

Wealth Effect

The change in spending and consumption patterns by individuals or households due to changes in their real or perceived wealth.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute away from more expensive goods towards cheaper ones.

Income Effect

The impact on consumer's choice arising from a change in their income, influencing their purchasing power.

Giffen Good

A type of inferior good for which demand increases as the price increases, violating the basic law of demand.