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Price elasticity of demand (PED) and income elasticity of demand (YED) is an important tool for private firms. It helps in decision making.

Mauritius has had low but steady growth rates, averaging 3.8% during 2015-2019.Following the Covid-19 induced crisis, the GDP plummeted by an estimated 14.9% in 2020. Over the course of the year 2021, GDP grew at an estimated 5%. In 2022, a revival in the tourism sector is expected to push growth to 6.7%, followed by 4% in 2023, as per the IMF forecast.

1. Discuss how knowledge of price elasticity of demand and income elasticity of demand might be of practical use to a firm selling holiday tours in an island like Mauritius in a period of falling income (low economic situation) following the exposure of COVID-19.
2. The price elasticity of demand for a monopolist's product is -0.7. Advise the firm on its pricing strategy.