Scenario: A friend who knows that you are learning problem-solving skills and economics has come to you for advice. At the beginning of this year, rent and the price of imported food rose. At the same time, prices for domestic food dropped. The family’s income stayed the same, but because of these economic changes, they had to make changes to their yearly budget.
Your friend’s family is unhappy about the lifestyle changes that your friend has chosen. Your friend knows that you are studying personal finance and have asked you how to explain to her family what has happened to their spending. She has brought with her their family budget from last year, as well as their current budget for this year.
STEP 2: Identify one relevant economic concept that applies to the scenario and describe how it applies. (Question 1)
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STEP 3: Summarize how expenditures changed between budgets. Make sure to address how expenditures changed (or did not change). (Question 2)
STEP 4: Describe the economic trends that created the need for a change in expenditures. Make connections to the economic concepts you have learned. (Question 3)
STEP 5: Explain the rationale for your friend’s budget decisions to her family. Address all changes (or non-changes) in expenditures and discuss long term effects. (Question 4)
STEP 6: Reflect on how changes in economic variables may impact your personal life and finances. (Question 5)
STEP 7: After completing all the questions in the Assignment 1 Template, save your responses as a Word document titled: Your Name, ECO110_Assignment 1 Economic Impacts and upload to BlackBoard in Week 4. Make sure to also review the scoring rubric before submitting it.
Assignment 1 Template: Impact of Economics on Daily Living
Scenario: A friend who knows that you are learning problem solving skills and economics has come to you for advice. They have brought their family’s budget from last year, as well as their current budget for this year. At the beginning of this year, rent and the price of imported food rose. At the same time, prices for domestic food dropped. Your friend’s family’s income stayed the same, but because of these economic changes, they had to make changes to their yearly budget. Budget 1 on the left shows how their family used to spend their income of $25,000. Budget 2 on the right reflects changes your friend made to the family’s budget based on economic changes.
Your friend’s family is unhappy about the lifestyle changes that your friend has chosen. They are having a difficult time explaining the reasons for some of the decisions they have had to made about family finances. Since they know that you are studying personal finance, they have asked you to help them come up with a way to explain to their family what has happened to their spending.
Answer the following questions based on the scenario and Budget 1 and 2:
1. In the first four weeks of this class you have learned about several economic concepts and how they impact daily living. Choose one economic concept from this list and explain how it is relevant to your friends’ budget situation:
- Supply and demand
- Tradeoff decisions
- International trade
- Opportunity cost
- Compound growth
2. How did expenditures change between budgets? Which expenditures changed the most? Which expenditures changed the least? Which stayed the same?
3. What were the economic trends that created the need for your friend’s family to change their expenditures? What can you infer about the connection between prices and expenditures, based on the economic concepts you have learned?
4. Help your friend explain the rationale for their budget decisions to their family. For each expenditure change, describe why your friend made that decision and how it impacts the family overall. Also make sure to address expenditures that did not change. What are the long-term benefits/risks of these changes? Some questions you could help them answer are:
- Why did your friend decide to buy less imported food, and more domestic food?
- Why did your friend decide to use the furnace and air conditioning less?
- Why did your friend decide to walk more?
- Why did your friend not change the amount spent of education and family care?
- Why did your friend decide to reduce savings, and what will the long-term effects of that be?
5. In our personal lives, we sometimes need to react to changes in our economic environment. Thinking about your own budget, describe how a change in an economic variable (such as a change in income, employment, interest rates, or prices) could impact your personal life and finances.