I think you've got it backwards. The sending unit is for a moped with a LARGER front tire. It assumes that I'm covering more distance than I really am with each revolution of the wheel.
Nevertheless, you've given me an idea. I note from the Moped Warehouse site that moped tires come in two sizes: 16" and 17". Mine are 2.25 x 16. The distance from the rim to the tread is another 2", so my total diameter is 20". The circumference, then, is 62.8".
Let's assume a 17" tire is also 2" from the rim to the tread, giving it a total diameter of 21" and a circumference of 65.9", which is 5% larger than the 16". Therefore, if the sending unit were intended for a 17" wheel, I'd read about 5% too high.
Looked at another way, a 17" wheel is spinning at 561 RPM at 35 MPH (35x5280x12/60/65.9). At 561 RPM, a 16" wheel is only going 33.4 MPH, or 95 percent as fast as the speedometer reads.
Unfortunately, I'm off by more than this amount. If the sending unit were designed for an 18" tire, I'd only be going 31.9 MPH when the speedo read 35 MPH, but who the hell has 18" tires for a moped?
I'm perplexed. So many of the parts on my bike are universal Italian components. I've got universal tires, wheels and speedometer, but they don't work together properly. Maybe they're front different universes?
I bought an extra, beat-up City Bike to use for parts. Maybe I'll try using the sending unit from that one to see if it makes any difference. Or, at least, I'll take apart the extra sending unit to find out what that silly little screw really does!