2.5 For each of the following scenarios, decide whether you agree or disagree and explain your answer.

a. Suppose the elasticity of demand for hospital service is

-0.15. In April 2015, the UK started charging non-EU patients 50 percent more. The Department of Health hoped the changes would help it recoup more of its costs.

b. Cruise vacation has become more popular these days. In fact, the annual number of cruise passengers globally doubled from 11 million in 2005 to 22 million in 2015. During the last three years, the market has been competitive; as a result, price has fallen by some 20 percent. If the price elasticity of demand was -1.6, vendors would lose revenues altogether as a result of the price decline. (Assume there was no shift in the demand curve in the past three years.)

c. If the demand for a good has unitary elasticity, or elasticity is -1, it is always true that a decrease in its price will lead to less revenue for sellers taken as a whole.