1.The consumer price index overestimates inflation because it A.uses the second year's market basket as the base rather than the first year's basket. B.allows consumers to move along a given indifference curve from one year to the next. C.measures the cost of a market basket in the second year that has too many units of the most inflated items. D.compares prices of what consumers actually buy rather than a fixed basket of goods.

2.Which of the following would be but best item for the local government to tax if its goal was to raise revenue?

A.Water supply B.Weather reports on your phone C.Outdoor concert provided by the city D.Leaf collection

3.Upon what is your current consumption dependent according to Milton Friedman? A.The income you earn today. B.The income you expect to earn later in life. C.The future value of your present income. D.The present value of your lifetime income.

4.If you wear your favorite clothes first and eat your favorite food before the food you prefer less you most likely have a time preference that varies depending on whether you are eating or dressing. a negative time preference. a neutral time preference. positive time preference.

5.If $100 today is worth $150 to you in the future, then you exhibit a negative marginal rate of substitution. a neutral time preference. a positive time preference. a negative time preference.

6.When people choose to wait for a kiss that they have won from a favorite movie star, they are clearly exhibiting a zero time preference. exhibiting a positive time preference with anticipation value. exhibiting a negative time preference and anticipation value. irrational by rational choice standards. 7.Colin's demand for golf at his local club each season is P = 50 - 2Q. If the golf course charges $26 dollars per round of golf, how much could it charge Colin in a membership fee before he would not play there? $144 $1,250 $312 $2888.If markets for addictive drugs have a more elastic demand curve than is often thought, and if addicts tend to be unstable people with low incomes, we might speculate that the most likely reason for the surprising elasticity estimates is that addictive drugs are inferior goods. the income effect has a more constraining effect than we had anticipated. the income and substitution effects work in opposite directions. the substitution effect is smaller than expected because addicts aren't as addicted as we thought.

9.If the government wanted to curb consumption of alcohol by taxing alcohol without hurting consumer's welfare it would raise the tax on alcohol until demand for alcohol became elastic. need to know the substitution effect but not the income effect of a tax hike. tax until the income effect of the price increase, which would be refunded, is exactly equal to the revenue gained from the tax. need to know the income effect but not the substitution effect of a tax hike.