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.

Question

Quizplus · Accepted Answer

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.

Gasoline and Bicycles Are Substitutes in Consumption