Reduced Supply Drives Up Prices and Profits

Steps:

• Fewer cafes mean less overall supply of snacks and drinks in the city center.
• With demand unchanged, reduced supply creates scarcity.
• Scarcity pushes equilibrium prices higher due to basic supply-demand dynamics.
• Higher prices allow remaining cafes to earn more revenue per sale, boosting profits assuming costs stay similar.

Why D is correct:

• Law of supply and demand: Decreased supply with constant demand raises prices, increasing revenue and profits for sellers.

Why the others are wrong:

• A: Prices decrease only if supply increases, opposite of the scenario.
• B: Profits decrease might occur with falling prices, but supply reduction raises them.
• C: Higher prices from scarcity should increase, not decrease, profits.

Final answer: D