Simultaneous leftward shifts in supply and demand

Steps:

• Rising aviation fuel prices increase production costs for airlines, shifting the supply curve leftward.
• Falling incomes in Asia reduce demand for air travel (a normal good), shifting the demand curve leftward.
• The new equilibrium quantity decreases due to both shifts reinforcing each other.
• The new equilibrium price is indeterminate, depending on the relative magnitudes of the shifts.

Why A is correct:

• In the supply-demand model, simultaneous leftward shifts in both curves unambiguously lower equilibrium quantity while leaving price ambiguous without specified shift sizes.

Why the others are wrong:

• B: Incorrectly assumes supply shift dominates, raising price, but demand shift may offset this.
• C: Incorrectly assumes demand shift dominates, lowering price, but supply shift may prevent this.
• D: Fails to account for either shift affecting equilibrium.

Final answer: A