Offsetting Demand and Supply Shifts

Steps:

• Price of substitute Y falls, shifting demand for X leftward and lowering its equilibrium price.
• Price of complement Z rises, shifting demand for X leftward and further lowering its equilibrium price.
• Combined demand decrease tends to reduce X's price.
• A supply decrease for X shifts its supply curve leftward, raising price and potentially offsetting the demand shift to keep equilibrium price unchanged.

Why C is correct:

• Some firms exiting production reduces X's supply (leftward shift per supply-demand equilibrium), countering the demand decrease from Y and Z price changes.

Why the others are wrong:

• A: New technology increases supply (rightward shift), amplifying the price fall.
• B: Subsidy lowers production costs, increasing supply and further reducing price.
• D: Tax cut reduces costs, increasing supply and decreasing price.

Final answer: C