4)Gasoline and bicycles are substitutes in consumption. Suppose we increase the federal gasoline taxto $1 per gallon. What are the initial changes that result from the tax as these markets adjust to anew general equilibrium?4)A)Gasoline price rises, and there is a move downward along the bicycle demand curve.B)Gasoline price rises, and there is a move upward along the bicycle demand curve.C)Gasoline price rises, demand for bicycles shifts rightward.D)Gasoline price rises, demand for bicycles shift s leftward.

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12-03-2020
Business

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4)Gasoline and bicycles are substitutes in consumption. Suppose we increase the federal gasoline taxto $1 per gallon. What are the initial changes that result from the tax as these markets adjust to anew general equilibrium?4)A)Gasoline price rises, and there is a move downward along the bicycle demand curve.B)Gasoline price rises, and there is a move upward along the bicycle demand curve.C)Gasoline price rises, demand for bicycles shifts rightward.D)Gasoline price rises, demand for bicycles shift s leftward.

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Answer:C)Gasoline price rises, demand for bicycles shifts rightward.

Explanation: Substitute goods are goods which that serve the same or similar purpose,one can be used in the place of the other. In the case of an increase in price of one of the products will leading to a reduction in demand forf that product and a subsequent increase in the demand for the other product which serves as a substitute for the product whose price was increased.

IN THE DEMAND CURVE, THE RISE IN TAX FOR GASOLINE WHICH IS A SUBSTITUTE FOR BICYCLE WILL CAUSE THE DEMAND FOR BICYCLE TO SHIFT RIGHTWARD.