Gasoline and Bicycles Are Complements in Consumption

question 59

Multiple Choice

Gasoline and bicycles are complements in consumption.Suppose we increase the federal gasoline tax to $1 per gallon.Initially,the gasoline price rises due to the tax,and the demand curve for bicycles shifts rightward because these goods are complements.Then,the bicycle price rises,and the demand curve for gasoline shifts rightward.Assuming the general equilibrium is achieved in both markets after these two steps,which of the following statements is NOT true?

• A)Partial equilibrium analysis only focuses in the first-round changes in the gasoline market (ignoring the secondary effects that arise from changes in the bicycle market).
• B)Partial equilibrium analysis would predict a larger shift in the price and quantity demanded for gasoline than a general equilibrium analysis.
• C)The price increase in gasoline is larger under the general equilibrium approach,but the change in the quantity of gasoline demanded is smaller than under partial equilibrium analysis.
• D)All of these statements are true.

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Definitions:

Rounded Pebbles

Smooth, round stones typically formed by the prolonged action of water or other forms of erosion and weathering on rocks.

Sandstone

A sedimentary rock made primarily of sand-sized grains of minerals or fragments of rocks, classified as clastic.

River

A significant stream of water that moves through a natural channel, heading towards the sea, a lake, or joining another stream.

Breccia

A rock composed of broken fragments of minerals or rock cemented together by a fine-grained matrix that can be similar or different in composition to the fragments.