Re: "I want to know whether the extra 5% (12%-7%) is because of the increase of the income. And the reason why if the income elastic is negative it will reduce the demand of the watches, not the quantity demand."
The extra 5% is not because of the increase of the income, it is because of the price elasticity of demand is higher than what was expected. ONLY inferior goods' income elasticity of demand is negative. It is obvious that the leading brand wrist watch "Envy" is a LUXURY good, so its income elasticity of demand is positive and greater than 1. Only price change will change the quantity demanded, all other factors' change will shift demand curve.

"why the elasticity of supply is elastic ,not inelastic."
Elastic means the supply curve is steeper, when the price changes can cause larger change in supply.