A consultant works for $200 per hour. She likes to eat vegetables, but is not very good at growing them. Why does it make more economic sense for her to spend her time at the consulting job and shop for her vegetables?

4.A computer systems engineer could paint his house, but it makes more sense for him to hire a painter to do it. Explain why.

5.What would be another example of a "system" in the real world that could serve as a metaphor for micro and macroeconomics?

6.Suppose we extend the circular flow model to add imports and exports. Copy the circular flow diagram onto a sheet of paper and then add a foreign country as a third agent. Draw a rough sketch of the flows of imports, exports, and the payments for each on your diagram.

7.What is an example of a problem in the world today, not mentioned in the chapter, that has an economic dimension?

8.The chapter definesprivate enterpriseas a characteristic of market-oriented economies. What wouldpublic enterprisebe?Hint: It is a characteristic of command economies.

9.Why might Belgium, France, Italy, and Sweden have a higher export to GDP ratio than the United States?

Table 9.4shows the fruit prices that the typical college student purchased from 2001 to 2004. What is the amount spent each year on the "basket" of fruit with the quantities shown in column 2?

ItemsQty(2001) Price(2001) Amount Spent(2002) Price(2002) Amount Spent(2003) Price(2003) Amount Spent(2004) Price(2004) Amount SpentApples10$0.50

$0.75

$0.85

$0.88

Bananas12$0.20

$0.25

$0.25

$0.29

Grapes2$0.65

$0.70

$0.90

$0.95

Raspberries1$2.00

$1.90

$2.05

$2.13$2.13Total

Table9.4

2.Construct the price index for a "fruit basket" in each year using 2003 as the base year.

3.Compute the inflation rate for fruit prices from 2001 to 2004r.

DD Co has a dividend payout ratio of 40% and has maintained this payout ratio for several years. The current dividend per share of the company is $050 per share and it expects that its next dividend per share, payable in one year's time, will be $052 per share. The capital structure of the company is as follows: $m $m Equity Ordinary shares (nominal value $1 per share) 25 Reserves 35 --- 60 Debt Bond A (nominal value $100) 20 Bond B (nominal value $100) 10 --- 30 --- 90 --- Bond A will be redeemed at nominal in ten years' time and pays annual interest of 9%. The cost of debt of this bond is 983% per year. The current ex interest market price of the bond is $9508. Bond B will be redeemed at nominal in four years' time and pays annual interest of 8%. The cost of debt of this bond is 782% per year. The current ex interest market price of the bond is $10201. DD Co has a cost of equity of 124%. Ignore taxation. Required:

(a) Calculate the following values for DD Co:

(i) ex dividend share price, using the dividend growth mode

(ii) capital gearing (debt divided by debt plus equity) using market values; and

(iii) market value weighted average cost of capital.

(b) Discuss whether a change in dividend policy will affect the share price of DD Co.

(c) Explain why DD Co's capital instruments have different levels of risk and return. (5 marksr