Ben Was Diagnosed with a Terminal Illness

question 88

Multiple Choice

Ben was diagnosed with a terminal illness.His physician estimated that Ben would live no more than 18 months. After he received the doctor's diagnosis, Ben cashed in his life insurance policy and used the proceeds to take a trip to see relatives and friends before he died.Ben had paid $12,000 in premiums on the policy, and he collected
$50,000, the cash surrender value of the policy.Henry enjoys excellent health, but he cashed in his life insurance policy to purchase a new home.He had paid premiums of $12,000 and collected $50,000 from the insurance company.

• A)Neither Ben nor Henry is required to recognize gross income.
• B)Both Ben and Henry must recognize $38,000 ($50,000 - $12,000) of gross income.
• C)Henry must recognize $38,000 ($50,000 - $12,000) of gross income, but Ben does not recognize any gross income.
• D)Ben must recognize $38,000 ($50,000 - $12,000) of gross income, but Henry does not recognize any gross income.
• E)None of these.

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Definitions:

Indifference Curves

Representations on a graph showing combinations of goods or services between which a consumer is indifferent, meaning they have no preference for one combination over another.

Elasticity

Elasticity refers to the degree to which demand or supply reacts to changes in price or other factors.

Indifference Curve Analysis

A graphical representation used in microeconomics to show combinations of two goods that provide the consumer with equal levels of utility.

Demand Curve

A graphical representation showing how the quantity demanded of a commodity changes with changes in its price, typically depicting an inverse relationship.