Scenario

Some friends who know that you are learning problem solving skills and economics have come to you for advice. They have brought with them their family budget from last year (Budget 1) and their current budget for this year (Budget 2).

Budget 1 on the left shows how their family used to spend their income of $25,000.

At the beginning of this year, they found that rent and the price of imported food have risen, and the price of food from the United States has dropped. They had no change in income, and they changed their purchases to those in Budget 2 on the right.

Your friends’ family is unhappy that they are buying less of their favorite imported foods, keeping the apartment colder in the winter and warmer in the summer, and walking more instead of taking taxis or using ride sharing services. They are also unhappy about saving less. Your friends know that you are studying personal finance and have asked you how to explain to their family what has happened to their spending.

Help your friends create a way to explain the economic and budget situation to their family. Additionally, think about what economic trends and changes mean to your own personal life and finances.

  Budget 1
  DollarsPercent
Income$25,000100%
Expenditures  
 Rent$7,50030%
 Imported Food$1,2505%
 Food from the U.S.$2,50010%
 Utilities$7503%
 Transportation$7503%
 Education$2,50010%
 Family Care$2,50010%
 Savings$7,25029%
 Total$25,000100%
  Budget 2
  DollarsPercent
Income $25,000100%
Expenditures  
 Rent$8,25033%
 Imported Food$7503%
 Food from the U.S.$3,00012%
 Utilities$5002%
 Transportation$5002%
 Education$2,50010%
 Family Care$2,50010%
 Savings$7,00028%
 Total$25,000100%

What were the economic trends that created the need for your friends’ family to change their expenditures? What can you infer about the connection between prices and expenditures, based on the economic concepts you have learned?

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