Shifts in Demand and Supply Due to Recession and Fuel Costs

Steps:

• Global recession reduces air cargo demand, shifting demand curve leftward.
• Increased fuel costs raise production expenses, shifting supply curve leftward.
• Leftward demand shift alone would lower price and quantity; leftward supply shift alone would raise price and lower quantity.
• Combined shifts result in unambiguously lower equilibrium quantity and indeterminate price change, but diagram shows new equilibrium at D.

Why D is correct:

• In supply-demand equilibrium, simultaneous leftward shifts decrease quantity and increase price, matching point D per the market model.

Why the others are wrong:

• A: Assumes only demand shift, ignoring supply effect on price.
• B: Predicts quantity increase, contradicting both shifts reducing output.
• C: Suggests price decrease, overlooking supply shift's upward pressure.

Final answer: D