1. (A) If the market price for mixers decreases, that means that the market supply curve for mixers has shifted to the right. This would lead to movement down along Henry's existing demand curve for mixers. He would use more mixers in his bakery but his demand curve for mixers would not shift.

(B) If the wage rate for labor (a substitute for capital) fell, Henry would tend to substitute additional labor units for capital in producing any given level of output. So, due to the substitution effect alone, the demand for mixers would fall. That is, the Henry's demand curve for mixers would shift down. However, the fall in the price of labor would lower the cost of producing bread, which could lead to an output effect, that is, a shift to the right for the bread supply curve. This output effect would tend to increase the demand for both labor and mixers. This operates against the substitution effect by shifting the demand curve for mixers up. Assuming on balance that the substitution effect dominates the output effect, there would be a decreased demand for mixers. If the output effect dominates, however, it is possible that the demand for mixers could increase.

(C) If the productivity of mixers decreases, the demand curve for mixers would shift down. After the productivity decrease, the value of the marginal product of mixers is lower for any given price of mixers.

(D) If the market price of bread increases, the demand curve for mixers would shift up. With the higher price of bread, the value of the marginal product of mixers is higher for any given price of mixers.

2. (A) If the cost of capital (a substitute for labor) decreases you get a situation that is exactly analogous to that described in 1(B) above. The demand for labor would fall looking at the substitution effect alone. If the output effect was strong enough, however, there could be an increased demand for labor.

(B) This is a situation analogous to 1(A) above. If the wage rate decreases, that means that the market supply curve for labor has shifted to the right. This would lead to movement down along Stephanie's demand curve for labor but the demand curve would not shift. She would use more labor in her earring shop.

(C) If the price of earrings increases, you get an effect analogous to 1(D) above. The demand curve for labor would shift up. With the higher price of earrings, the value of the marginal product of labor is higher for any given price of labor.

(D) If labor productivity increases, the demand curve for labor would shift up. After the productivity increase, the value of the marginal product of labor is higher for any given price of labor.