Economic Impacts Assignment 1

Assignment 1 Economic Impacts Templatebudgetseco1102budget 1dollarsper

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. Questions 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 could your friends not 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.]

Paper For Above instruction

The economic concept of supply and demand is highly relevant to the family's budgeting changes, particularly concerning the price fluctuations in imported and U.S. food products. Supply and demand determine prices in the market, influencing how much consumers are willing to pay for goods. When the price of imported foods rises, the family's purchasing power diminishes, prompting them to buy less of these items and shift towards domestically produced foods, which have become relatively cheaper. This adaptation mirrors the economic principle that as prices increase, demand typically decreases, assuming other factors remain constant. Conversely, if prices decrease, demand tends to rise, which might explain the family's increased consumption of U.S. food products when their prices dropped. This dynamic illustrates the direct relationship between price movements and consumption behavior, underpinning their decision to alter their grocery choices based on changing market conditions.

Regarding expenditure changes between budgets, the most significant alterations are evident in rent and imported food expenses. Rent increased from 28% to 32% of income, reflecting rising housing costs that consume a larger share of the family's budget. Simultaneously, their expenditures on imported food declined markedly from 4% to 0.5%, showing a substantial reduction aligned with international trade and pricing dynamics. The smallest changes occurred in expenditures for utilities, transportation, education, and family care, which remained relatively stable, with only minor percentage shifts. Interestingly, the expenditure dedicated to savings remained unchanged at 28%, indicating a conscious effort to maintain financial security despite other budget adjustments.

The economic trends influencing these expenditure changes include rising housing costs and international trade fluctuations. Increased rent signifies heightened demand or reduced supply in the housing market, elevating prices and forcing families to allocate more income to shelter. The rise in the cost of imported foods can be attributed to global supply chain disruptions, tariffs, or inflation, prompting consumers to seek substitute domestic products. The decrease in the price of food from the U.S. exemplifies how international trade can impact domestic markets, influencing consumer choices and expenditure patterns. These trends reinforce the concept that prices are a crucial factor affecting household budgets, with consumers responding to shifts in market conditions by adjusting their consumption and saving behaviors.

Explaining their budget decisions, the family might say they opted to buy less imported food because prices increased due to global economic factors, while domestic foods remained relatively affordable, offering a practical alternative. They decided to use the furnace and air conditioning less to reduce utility bills, perhaps motivated by energy price increases or the desire to cut costs amid financial uncertainties. Walking more instead of using taxis or ride-sharing services aligns with efforts to decrease transportation expenses, responding to higher fuel costs or a need to save money. The unchangeable expenditure on education and family care suggests these costs are considered essential and less flexible, reflecting fixed commitments or values. The decision to reduce savings might have been driven by immediate financial needs or the desire to maintain current consumption levels; however, this could have long-term repercussions, such as reduced financial security or lower future investment capacity.

In my personal financial context, a significant change over the past year was a decline in interest rates offered on savings accounts. This decrease has reduced the potential earnings from savings, prompting me to reconsider my investment strategies and explore alternative financial instruments with higher returns. If interest rates remain low, it could lead to a continued shift away from traditional savings toward investments with higher risk but potentially better yields. Alternatively, rising prices due to inflation could erode the purchasing power of my income, requiring adjustments in my budgeting, such as cutting discretionary spending or seeking additional income sources. Over the next year or two, if these trends persist, I predict that I will need to diversify my investments and adopt more active financial planning to protect my long-term financial stability, emphasizing assets less affected by inflation or interest rate volatility.

In conclusion, understanding economic concepts such as supply and demand, inflation, and international trade helps to explain the family’s shifting expenditures and financial decisions. These principles highlight the interconnectedness of global markets and personal finance, emphasizing the importance of adaptability and informed decision-making in maintaining financial well-being amidst changing economic conditions.

References

• Krugman, P., & Wells, R. (2018). Economics (5th ed.). Worth Publishers.
• Mankiw, N. G. (2020). Principles of Economics (8th ed.). Cengage Learning.
• Samuelson, P. A., & Nordhaus, W. D. (2010). Economics (19th ed.). McGraw-Hill Education.
• Baumol, W. J., & Blinder, A. S. (2015). Economics: Principles and Policy (13th ed.). Cengage Learning.
• Case, K. E., Fair, R. C., & Oster, S. M. (2017). Principles of Economics (12th ed.). Pearson.
• Investopedia. (2023). Supply and Demand Explained. https://www.investopedia.com/terms/s/supplyanddemand.asp
• Federal Reserve. (2023). Economic Data and Reports. https://www.federalreserve.gov/econres.htm
• World Bank. (2023). Global Economic Prospects. https://www.worldbank.org/en/publication/global-economic-prospects
• U.S. Census Bureau. (2023). Consumer Expenditure Survey. https://www.census.gov/programs-surveys/ces
• International Trade Administration. (2023). Trade and Market Access. https://www.trade.gov