1) The following figure shows a consumer's budget constraint and indifference curves. B1 is the initial budget curve and B2 is the new budget constraint

a) What happened to cause the budget constraint to change from B1 to B2? Explain your response.

b) Mark the preferred bundle in time period 1 and time period 2. How does the amount of whiskey consumed differ between them?

i) Mark the amount of whiskey consumed in period 1 as W₁ and in period 2 as W₂.

c) Demonstrate how much of that difference is due to the income effect and how much is due to the substitution effect. Explain what this means.