Question

The cost of sensors used in making digital cameras falls, while a successful ad campaign makes digital cameras more fashionable. As a result, the equilibrium price of digital cameras _____ and the equilibrium quantity _____.A)increases; increasesB)increases; may in

Answer 1

Answer: Indeterminate; Increases

Explanation:

We know that sensors are used as an input in the production of digital cameras. So, if the price of sensors falls, as a result cost of production of digital cameras also falls. This will increase the supply of cameras and shift the supply curve rightwards.

At the same time successful ad campaign will make the digital cameras more fashionable and increases the demand for digital cameras. This will also shift the demand curve rightwards.

Hence, there is an increase in the equilibrium quantity but effect on equilibrium price is indeterminate because it will be depend upon the magnitude of the shift of demand and supply curve.