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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.


1. In the first four weeks of this class, you have learned about economic concepts such as supply and demand, scarcity, tradeoff decisions, international trade, opportunity cost, and compound growth. Choose one economic concept from this list and explain how it is relevant to your friends’ budget situation.

[Write your response to Question 1 here.]

2. How did expenditures change between budgets? Which expenditures changed the most? Which expenditures changed the least? Which stayed the same?

[Write your response to Question 2 here.]

3. 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?

[Write your response to Question 3 here.]


4. Help your friends explain the rationale for their budget decisions to their family. Some questions you could help them answer are:

a. Why did your friends decide to buy less imported food and more domestic food?

b. Why did your friends decide to use the furnace and air conditioning less?

c. Why did your friends decide to walk more?

d. Why couldn’t your friends change the amount spent on education and family care?

e. Why did your friends decide to reduce savings, and what will the long-term effects of that be?

[Write your response to Question 4 here.]

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) from within the last year either has impacted or could impact your personal life and finances. If the trend continues over the next year or two, what predictions could you make about further impacts to your personal life and finances?

[Write your response to Question 5 here.]