3. The average price of a medium coffee at Wakeup Coffee Shop in each of the past ten years is given in the table below. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $1.05 $1.10 $1.14 $1.20 $1.25 $1.25 $1.33 $1.35 $1.45 $1.49

4. Construct an annual 'coffee price index' for this time period using 2005 as the base year. [Hint: follow the procedure detailed in the chapter - divide each yearly price by the base year price.]

5. Based on your price index, what was the percentage change in the price of a medium coffee from 2005 to 2012?

6. Based on your index, what was the average annual percentage change in the price of coffee from 2005 to 2010?

7. Assuming the inflation rate in this economy was 2% every year, what was the real change in the price of coffee between 2007 and 2008; and between 2009 and 2010? 8.The following table shows hypothetical consumption spending by households and income of households in billions of dollars.

9.Plot the scatter diagram with consumption on the vertical axis and income on the horizontal axis.

10. Fit a line through these points.

11.Does the line indicate that these two variables are related to each other?

12.How would you describe the causal relationship between income and consumption?

13. Using the data from Exercise 2.3, compute the percentage change in consumption and the percentage change in income for each pair of adjoining years between 2006 and 2013.

14. You are told that the relationship between two variables, X and Y, has the form Y = 10 + 2X. By trying different values for X you can obtain the corresponding predicted value for Y (e.g., if X = 3, then Y = 10+23 = 16). For values of X between 0 and 12, compute the matching value of Y and plot the scatter diagramr