Correct Option
The correct option is Price decreases..
Explanation
The equilibrium price in a market is determined by the intersection of the supply and demand curves. A shift in either curve disrupts the equilibrium, leading to a new price and quantity. The direction of the change depends on the nature of the shifts (increase or decrease) and their relative magnitudes.
Analysis of Shifts
- Rightward Shift in Supply: A rightward shift of the supply curve indicates an increase in supply. Holding demand constant, an increase in supply creates a surplus at the original price, putting downward pressure on the price.
- Leftward Shift in Demand: A leftward shift of the demand curve indicates a decrease in demand. Holding supply constant, a decrease in demand creates a surplus at the original price, also putting downward pressure on the price.
- Combined Effect on Price: Since both the increase in supply and the decrease in demand independently cause the price to fall, their simultaneous occurrence guarantees a decrease in the equilibrium price.
- Effect of Magnitude: The question specifies that the demand shift (leftward) is of a larger magnitude than the supply shift (rightward). While this magnitude difference is crucial for determining the net change in quantity (which would decrease because the fall in demand outweighs the rise in supply), it is not required to determine the direction of the price change, as both forces push the price down.
Key Takeaway: When the supply curve shifts right (increase) and the demand curve shifts left (decrease), both shifts exert downward pressure on the price, resulting in an unambiguous decrease in the equilibrium price.