Answer to Question #142492 in Microeconomics for Shivani Fernando

Question

Assume champagne industry has recently launched a successful marketing campaign that changes consumers’ tastes and preference for champagne. Many executives in the industry were happy about the resulting excessively high champagne prices. But some economists feared that such sharp price increases would cause demand to decline and may lead to a collapse in the champagne market. Please discuss the above situation in terms of economic theories such as demand/supply, etc. answer should be around 220 words

Answer 1

The excessively high champagne prices are the result of increase in demand for champagne, so such sharp price increases would not cause demand to decline and lead to a collapse in the champagne market.