ECO-FPX1150 – Assessment 1 Impact of Economics on Daily Living
Budget 1
| Dollars ($) | Percent (%) | |
| Income | 50,000 | 100 |
| Expenditures | ||
| Housing | 8,500 | 17.0 |
| Food | 5,500 | 11.0 |
| Utilities | 5,000 | 10.0 |
| Transportation | 7,000 | 14.0 |
| Taxes | 6,000 | 12.0 |
| Debt Payments or Savings | 5,500 | 11.0 |
| Soc. Security, Personal Ins., 401k | 5,000 | 10.0 |
| Health Care | 2,500 | 5.0 |
| Entertainment | 2,000 | 4.0 |
| Apparel | 1,400 | 2.8 |
| Misc | 1,000 | 2.0 |
| Personal Care | 600 | 1.2 |
| Total | 50,000 | 100 |
Budget 2
| Dollars ($) | Percent (%) | |
| Income | 51,000 | 100 |
| Expenditures | ||
| Housing | 10,000 | 19.6 |
| Food | 5,300 | 10.4 |
| Utilities | 5,100 | 10.0 |
| Transportation | 7,000 | 13.7 |
| Taxes | 5,800 | 11.4 |
| Debt Payments or Savings | 4,900 | 9.6 |
| Soc. Security, Personal Ins., 401k | 5,000 | 9.8 |
| Health Care | 2,600 | 5.1 |
| Entertainment | 1,100 | 2.2 |
| Apparel | 900 | 1.8 |
| Misc | 700 | 1.3 |
| Personal Care | 600 | 1.2 |
| Education | 2,000 | 3.9 |
| Total | 25,000 | 100 |
Scenario
Your child is starting a two-year culinary program at a community college this year and was awarded a small grant to cover some of the cost. You need to adjust your budget for this additional expense, as well as consider and project future economic trends. At the beginning of this year, the cost of housing, for example, rose as there were more renters than rental units. Additionally, certain trade decisions have made some imported items more expensive than the previous year. The family’s income changed slightly, but because of these economic changes, they will need to make changes to the yearly budget. You will need to analyze spending in the prior year (Budget 1) and the current budget (Budget 2) for this year. Your family might not be happy with some of your decisions about where to spend less or where to spend more. So, you also need to be prepared to explain the reasoning for your decisions to them.
Questions
You have learned about economic concepts such as supply and demand, scarcity, tradeoff decisions, international trade, opportunity cost, and compound growth. Think about the economic concepts you encountered in the resources for this assessment, or those you know about from previous learning or research. These could include concepts such as supply and demand, scarcity, tradeoff decisions, inflation, and opportunity costs. Choose at least one economic concept and describe how it is relevant to the scenario and your two budgets.
Almost all of the concepts highlighted above apply to the scenario provided. However, the concepts of scarcity and trade-offs are more relevant as compared to the rest. Essentially, this is so because the family faces a scarcity of resources and has to consider which of the needs are more important than others under a tradeoff decision. The tradeoff decisions will assist me in allocating resources across various expenditures effectively. As provided in the scenario, there will be a need to cut costs in other areas of expenditure to fund the child’s education program. Additionally, the concept of opportunity cost is reflected as cutting costs from other areas to fund the child’s program. Opportunity cost comes in by foregoing other needs for the next best alternative (Galperti, 2019). Thus, the case is a representation of managing resources effectively.
How did expenditures change between budgets? Which expenditures changed the most? Which expenditures changed the least? Which stayed the same? Summarize the change in expenditures between budgets.
The expenditures changed with some getting more allocation while others receiving a cut. Starting with expenditures that increased, the housing expense increased by 2.6%, taxes by 0.6%, and health care by 0.1% relative to the overall income. On the other hand, food expenditure was reduced by 0.6%, transportation by 0.3%, taxes by 0.6%, debt payments or savings by 1.4%, social security and personal insurance by 0.2%, entertainment by 1.8%, apparel by 1%, and miscellaneous expenses by 0.7% relative to the overall income. Additionally, the expenses for utilities and personal care remain unchanged across the two budgets. It is also worth noting that the second budget introduced a new expenditure on education. From the analysis, housing expenses increased the most while the healthcare expenditure changed the least.
What were the economic trends that created the need for your family to change their expenditures? What can you infer about the connection between prices and expenditures, based on the economic concepts you have learned? Describe the economic trends that created the need for a change in expenditures.
The economic trends that necessitated the changes witnessed in the budget for the family to alter the expenditures were the rise in housing costs. Notably, there was a higher demand for rental units. Additionally, price increases in some items, such as imported drugs, pushed the expenditure upwards. The change in prices required a shift in the expenditure for the family as the need for housing, food, and healthcare can not be avoided.
Think of a way to explain the rationale for your budget decisions to your family. Some questions you could think about to help create your explanation are:
- Why did you decide to buy less food?
- Why did your housing costs increase?
- Why did you decide to cut the most from entertainment and apparel?
- Why couldn’t you change the amount you spent on transportation (this likely includes your car payment)?
- What other areas had to remain the same?
- Why did you decide to reduce the amount that you paid towards existing debt or put into savings, and what will the long-term effects of that be?
I decided to buy less food because there was much luxury part of the food expenditures. The cut on food expenditure was to target food items that are not part of the basic food such as meals for in-between meals. The same cannot be said for housing costs. Essentially, this is so because housing costs increased due to the rise in housing costs in town due to increased demand for housing units. I decided to cut expenditure on entertainment significantly because entertainment is not a necessity. Even though apparel is a necessity, I decided to cut its budget significantly because we have enough apparel for the current budgeting period. It would not be possible to change the transportation costs as they have to be incurred just like before the adjustments. Another area that remained the same is the expenditure for personal care as no change is anticipated. The expenditure for debt and savings was reduced to cater to the budget deficit. However, it will have a negative impact in the long term as the possible amount available to spend will reduce (Grable & Palmer, 2022). There should be changes to address this in subsequent budgets.
In our personal lives, we sometimes need to react to changes in our economic environment. Thinking about your 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 on your personal life and finances?
In my personal life, a change in economic variables that has impacted my finances is the rise in food prices over the past year. As grocery costs have increased, I have had to allocate a larger portion of my budget towards food expenses. If this trend continues, I may need to explore cost-saving measures like meal planning, buying in bulk, and reducing dining out to mitigate the impact on my overall finances.
References
Gilbert, S. (2019). A theory of personal budgeting. Theoretical Economics, 14(1), 173–210.
Grable, J. E., & Palmer, L. (2022). Introduction to personal finance: Beginning your journey (2nd. ed.). Wiley. Available in the
courtroom via the VitalSource Bookshelf link.
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Question 
Adjust your family’s yearly budget to accommodate changes in income and expenditures. Apply what you have learned to discuss economic trends that affected budgetary changes and explain why you made certain budget decisions.
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Introduction
What Is Economics?
What does the price of bread have to do with international relations? How do you know if it’s the right time to buy a new computer or look for a new job? Should you save your holiday bonus or spend it?
The study of economics helps you answer these questions and more by examining how society produces, consumes, and exchanges wealth and other resources every day. In fact, everything we do—from the choices we make about our careers to how much we spend and save—is influenced by the economy. Understanding the science of economics can give us the confidence to navigate our personal financial future.
In this course, you will be introduced to the basic concepts of economics and explore the essential skills that will help you ensure your personal, professional, and financial well-being. We’ll also discuss what it means to invest in your most valuable resource: you.