1. A.

Coffee amount

Originally budget constraint

New budget

constraint

brads amount

 when natural coffee price improvement because wintry effect

which too early, consumer budget constrain shift up at in and alter
his inclination.

B. coffee amount

Originally budget constraint

subtitution

effect new budget constraint

Breads amount

subtitution effect

 effect subtitution cause the consumer buy more breads and lessen
purchasing of coffee
C. coffee amount

Originally budget constraint

Earning
effect
Breads amount
New budget earning effect
constraint

 earnings effect cause the consumer buy more coffees and lessen
purchasing of bread

3. A. Cannot, because Mario only consuming the cake and cheese, so

whenever earnings Mario mount, both types of the goods will tend to
be added by his consumption or one of that goods become the goods
inferior but normal on the other.

B. hence Mario will consume more cheeses than cake because if

earnings Mario mount, he will buy more cheeses and get the
cheeses more because his price go down. when cheese price go
down, consumer budget constrain shift up at outside

4. a. Milks amount
 50

Jim’s budget constraint

25

Cakes amount

12,5 25

Earnings = $ 100 milks amount = 100 / 2 = 50

Milks price = $2 cakes amount = 100 /4 = 25

Cakes price = $ 4

b. 50 milks amount

25 decrease milks consume

22,7

Jim’s Budget constraint in 2003

Cakes amount

Decrease 12,5 22,7 25

Cake consume jim’s budget constraint in 2004

 because the going up both the goods, thus nothing proportioned

11. a. when labour get more fee, while tax rate go down, the
subtitution effect push the labour to work more diligent as response
to increase of fee.
While if more dominant earnings effect of effect subtitusi so
whenever tax rate go down hence labour will be more secure and
prosperous then before and he will work less.

b. (belum tau)

12. a. Dan b. ( made into one graph)

Consumption in old day

Optimum

Indiferent curve

Budget constraint
1 consumption in nonage

c. when rate of interest go up, he will improve the savings amount and
he will be more secure and prosperous then before so there is tendency
enjoy more consumption. So earnings effect push to save less.

• If the substitution effect of a higher interest rate is greater than the

income effect, households save more.

• If the income effect of a higher interest rate is greater than the

substitution effect, households save less.