Asked by Jazzy Asberry on Jun 17, 2024
Verified
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, and there is a move downward along the bicycle demand curve.
D) Gasoline price rises, and there is a move upward along the bicycle demand curve.
Federal Gasoline Tax
A tax imposed by the federal government on the sale of gasoline, used primarily to fund transportation infrastructure projects like highways and bridges.
Substitutes
Products or services that can replace each other in use, such that an increase in the price of one leads to an increase in the demand for the other.
General Equilibrium
A condition in economics where supply and demand are balanced across all markets in the economy simultaneously.
- Learn about the significance and impact of complementary and substitute goods on the consumption habits of consumers.
- Investigate the consequences of tax adjustments, subsidies, and the dynamics of supply and demand curves on equilibrium in the market.
Verified Answer
CR
Christian RiveraJun 23, 2024
Final Answer :
B
Explanation :
Since gasoline and bicycles are substitutes, an increase in the price of gasoline due to the tax would lead consumers to look for alternative modes of transportation, thus increasing the demand for bicycles.
Learning Objectives
- Learn about the significance and impact of complementary and substitute goods on the consumption habits of consumers.
- Investigate the consequences of tax adjustments, subsidies, and the dynamics of supply and demand curves on equilibrium in the market.