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11 April, 13:13

Gasoline and bicycles are substitutes in consumption. Suppose we increase the federal gasoline tax to $1 per gallon.

What are the initial changes that result from the tax as these markets adjust to a new general equilibrium?

A) Gasoline price rises, demand for bicycles shift s leftward.

B) Gasoline price rises, demand for bicycles shifts rightward.

C) Gasoline price rises, move downward along bicycle demand curve.

D) Gasoline price rises, move upward along bicycle demand curve.

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Answers (1)
  1. 11 April, 15:01
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    If the federal gasoline tax increases to $1 per gallon, the gasoline price rises, demand for bicycles shifts rightward.

    Option B

    Explanation:

    If the price of gasoline increases, then probably there will be a decrease in the consumption of the same as a result of which the demand for the substitute product, bicycle increases.

    Demand curve a graphical representation of changes in the product or service demanded along with the changes in the cost or price of the service or product. Increase in the demand for a product, is generally represented by the rightward shift in the demand curve.
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