Gasoline and Bicycles Are Substitutes in Consumption

question 58

Multiple Choice

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.

---

Definitions:

Excise Tax

A tax levied on specific goods or services, such as alcohol, tobacco, and gasoline, usually to discourage their use or to generate revenue.

Negative Externality

A cost that affects a party who did not choose to incur it, often associated with the consumption or production of goods and services.

Price

The sum required, expected, or disbursed as a purchase price for an item.

Government-Provided Goods

Goods and services offered to the public by the government that might not be provided by the market or would be underprovided, such as public parks and national defense.