Final answer:
The equilibrium price increases and the equilibrium quantity decreases when supply falls more than demand. Answer is C. increases; decreases.
Step-by-step explanation:
When both the supply and demand for a good fall simultaneously but the reduction in supply is greater than the reduction in demand, the equilibrium price will typically increase, and the equilibrium quantity will decrease. The correct answer is C. increases; decreases.
This scenario can be analyzed in a four-step process: First, sketch a supply and demand diagram to consider the initial state of the market. Second, determine that both supply and demand are affected negatively due to reductions. Third, draw the new supply and demand curves that have shifted to the left (a reduction). Finally, observe that the new equilibrium price, where the curves intersect, will be higher due to the greater decrease in supply, and the equilibrium quantity will be lower since both curves reflect reduced quantities at any given price.
Supply reductions can often raise prices due to scarcity while demand reductions normally would decrease prices. However, because the supply reduction is more severe, it outweighs the demand reduction, leading to an uptick in price but a downturn in quantity.