Final answer:
When the cost of wood increases and consumer incomes decrease, the equilibrium price of housing could fall, rise, or stay the same due to competing effects, while the equilibrium quantity of housing is expected to fall.
Step-by-step explanation:
If the price of wood increases at the same time that incomes of consumers fall, one would expect both the equilibrium price and quantity of housing to decrease. An increase in wood prices raises production costs for new homes, which would shift the supply curve to the left, leading to a higher equilibrium price for housing.
However, if consumer incomes fall, the demand for housing, a normal good, will also decrease, shifting the demand curve to the left. This results in a lower quantity of housing being demanded at any given price, including at the increased equilibrium price.
Therefore, these two effects working together—higher production costs and lower consumer demand—would both act to reduce the equilibrium quantity of housing. However, because the demand for housing is decreasing due to the drop in incomes, this decrease in demand would likely offset any price increases due to higher wood costs.
Thus, the equilibrium price may fall, rise, or stay the same, depending on the relative magnitudes of the shifts in supply and demand. In this case, since housing is a normal good, the most reasonable prediction (given the information provided and ceteris paribus) is option 3: fall; falls, rises, or stays the same.