The item is income elastic because the income elasticity is about two (greater than one so that quantity demanded rises at a greater rate than income.) Remember:

Quantity demanded =income2+3xincome+40

so thatqincome=2xincome+3

And income elasticity =qincomexincome/q

If income = $1000; then Q = 1,003,040 million cars

andqincome

=2003

So elasticity = 2003 x 1000/1,003,040 = 1.997or close to 2

Try another problem, time for taxes and labor supply. There is a policy debate about the effect of tax rates on work effort: how much less will people work if taxes are raised?

If Labor hours supplied = - 0.2 x Marginal tax rate x100 + 40,

What is the elasticity of labor supply with respect to the tax rate if labor hours are 40; tax rate = 25%?

A)0.25

B)-0.125

C)-2.5

D)- 0.2

E)2.125