In canine ville the price elasticity of demand for dry dog f

In canine ville, the price elasticity of demand for dry dog food is 0.8, the income elasticity of demand for dry dog food is 0.2, and the cross elasticity of demand for dry dog food with respect to canned dog food is 0.6. If incomes in Canine Ville increase by 5 % with no change in price of package of dry dog food, the quantity of dry dog food (increases or decreases) by ____%. If Canine Ville, a package of dry dog food is: a normal OR inferior good. In canine Ville, dry dog food and canned dog food are substitutes.

Solution

As we know, income elasticity of demand = Percentage change in quantity demanded / percentage change in income.

So, we have: Income elasticity of demand = 0.2 = Percentage change in quantity demanded / 5%

So, Percentage change in quantity demanded = 0.2 * 5% = 1%.

Therefore, there would be a 1% Increase in the quantity demanded.

As the Income elasticity of demand is positive, we can say that it is normal good as the demand increases with the increase in income level. (If it was negative it would have been an inferior good).

I hope my solution solves your query.