Final answer:
The destruction of California's avocado trees leads to a decrease in the supply of avocados, increasing their price and decreasing the quantity of guacamole produced and sold. Therefore, the market for guacamole experiences an increase in price and a decrease in quantity.
Step-by-step explanation:
When a natural disaster like a fire destroys California's avocado trees, it affects the market for guacamole as avocado is a primary ingredient. According to the law of supply, if the number of avocado trees decreases, the supply of avocados will diminish. With a reduction in supply, the supply curve shifts left. On a supply and demand graph, this would be seen as the supply line moving to the left, leading to a higher equilibrium price and a lower quantity of avocados available. Therefore, the cost of making guacamole will rise due to the higher avocado prices, and the quantity of guacamole produced and sold will decrease as not enough avocados are available to meet the previous demand. Hence, the correct answer to this question is C) Price increases; quantity decreases.