The first thing to note, is that the article is about an increase in income in the Midwest. Since this is the focus, most likely the question will focus on income elasticity.

   The question then goes on to ask, what is most likely to have happened to price and quantity sold of new cars in the Midwest during the time of the income increase.

   New cars are not only likely to be normal goods, they are most probably luxury goods; meaning that sales of new cars probably increased by a greater percentage than did income. In other words, the increase in income would cause the demand for new cars to shift out and price and quantity would increase.

13. On the front page of the September 27, 1996 New York Times is an article with the headline ``U.S. Census Finds First Income Rise in Past Six Years.'' The text reports that ``much of the rise in household incomes was in the Midwest.'' Based on this information alone, what would you expect has been happening to equilibrium prices and quantities sold of new cars in the Midwest during this period of increasing incomes.

1. Equilibrium prices have probably been rising and quantities falling since supply of new cars is probably inelastic. Regardless of whether demand is elastic or inelastic, for price to rise and quantity to fall the supply curve would have had to shift back - a decrease in supply - which would not result from an increase in consumer incomes. An increase in income shifts demand out.
2. Equilibrium prices have probably been rising and quantities falling since demand for new cars is probably price and income inelastic. Regardless of whether demand is elastic or inelastic, for price to rise and quantity to fall the supply curve would have had to shift back - a decrease in supply - which would not result from an increase in consumer incomes. An increase in income shifts demand out.
3. Equilibrium prices have probably been rising and quantities increasing, since income elasticity of demand for new cars is probably positive and greater than one. This is correct, the increase in income should cause the demand for new cars to shift out.
4. Equilibrium prices have probably been falling and quantities increasing since income elasticity of demand for new cars is probably negative. Negative demand is very unlikely, it would mean that most consumers sell new cars instead of buying them. For price to fall and quantity to rise the supply curve would have had to shift out - an increase in supply.
5. Equilibrium prices have probably been falling and quantities falling since cross price elasticity of demand for new cars with respect to income is probably negative. Cross price elasticity of demand for new cars with respect to income, is a made-up term to generate a wrong answer that sounds complicated enough to be correct. For price to fall and quantity to rise the supply curve would have had to shift out - an increase in supply.