George, a Former Intravenous Drug User, Was Worried About His

question 15

True/False

George, a former intravenous drug user, was worried about his future health. To him it was easier to live in doubt as to whether he had contracted the AIDS virus than face the fact if the test was positive, so he never obtained a blood test. He applied for life insurance and answered the general questions truthfully, adding the phrase "as far as I know." Should his past later come to light, the insurance company could refuse to honour the policy.

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Definitions:

Income Effect

The change in individuals' consumption patterns due to an increase or decrease in their income, affecting their purchasing power.

Substitution Effect

The economic principle that as the price of a good rises, consumers will replace it with cheaper alternatives, whereas if the price falls, the good will replace more expensive alternatives.

Economic Rent

Income derived from the ownership or control of a scarce resource, exceeding the income that would cause the resource to be brought into use.

Marginal Resource Cost

The additional cost incurred by acquiring one more unit of a resource.