Business, 24.03.2020 16:41 catsareokiguess

The wrist watch industry in a country is not very competitive. There are limited brands available and the existing firms use their market power to keep prices high. Envy, one of the leading brands in the market, is planning to increase the price from $1,000 to $1,100 per watch. The firm is expecting the quantity demanded to fall by only 7 percent. However, after the price is increased to $1,100, quantity demanded actually declined by 12 percent. Sonia, a student of economics, knows that the average income level in this country has increased over the last year. When actual sales of Envy watches turn out to be lower than anticipated, she concludes that the income elasticity of demand for Envy watches is negative. Her conclusion is flawed because

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The wrist watch industry in a country is not very competitive. There are limited brands available an...

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