Suppose consumers discover new uses of camera and cost of producing the cameras also decline. What will be the effect of this development on the equilibrium price and equilibrium quantity?

Increase in equilibrium quantity, uncertain effect on price

The correct answer is option 1: Increase in equilibrium quantity, uncertain effect on price

When consumers discover new uses for cameras, the demand for cameras increases, shifting the demand curve to the right. At the same time, if the cost of producing cameras declines, the supply of cameras increases, shifting the supply curve to the right as well.

The effect on equilibrium quantity is clear – it will increase, since both supply and demand have risen.

The effect on equilibrium price is uncertain because:

• If the increase in demand is greater than the increase in supply, the equilibrium price will rise.
• If the increase in supply is greater than the increase in demand, the equilibrium price will fall.
• If both shifts are equal, the equilibrium price remains unchanged.