A family friend is shopping for an exclusive Vera Wang wedding gown for $8,000 but feels that the price is excessive. She argues that the company should lower prices not only to benefit customers but also to increase the company's revenues and profits. What has she assumed about the price elasticity of demand for these gowns? Is her assumption likely to be correct or incorrect? Why?
In this case the friend has assumed that demand is elastic and that a decrease in price would lead to an increase in total revenues. However, her suggestion is likely incorrect being that the exclusive nature of these gowns would mean that many of the existing customers would be willing to purchase the gowns even if the price rose dramatically. As such, the demand is more likely to be inelastic.
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