Simultaneous shifts in supply and demand curves

Steps:

• Rising raw material costs decrease supply, shifting the supply curve leftward.
• Increasing incomes for the rich boost demand for luxury watches, shifting the demand curve rightward.
• The new equilibrium occurs at the intersection of the left-shifted supply and right-shifted demand.
• This results in a higher equilibrium price and likely higher quantity, corresponding to point B.

Why B is correct:

• Point B reflects the law of supply and demand, where opposing shifts raise price unambiguously while quantity rises if the demand increase outweighs the supply decrease.

Why the others are wrong:

• A: Shows only a supply shift, ignoring the demand increase.
• C: Indicates lower quantity, inconsistent with rightward demand shift.
• D: Suggests lower price, contradicting both shifts' upward pressure on price.

Final answer: B