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
		Dollars	Percent
Income		$25,000	100%
Expenditures
	Rent	$7,500	30%
	Imported Food	$1,250	5%
	Food from the U.S.	$2,500	10%
	Utilities	$750	3%
	Transportation	$750	3%
	Education	$2,500	10%
	Family Care	$2,500	10%
	Savings	$7,250	29%
	Total	$25,000	100%

		Budget 2
		Dollars	Percent
Income		$25,000	100%
Expenditures
	Rent	$8,250	33%
	Imported Food	$750	3%
	Food from the U.S.	$3,000	12%
	Utilities	$500	2%
	Transportation	$500	2%
	Education	$2,500	10%
	Family Care	$2,500	10%
	Savings	$7,000	28%
	Total	$25,000	100%

1. Help your friends explain the rationale for their budget decisions to their family. Some questions you could help them answer are:
   1. Why did your friends decide to buy less imported food and more domestic food?
   2. Why did your friends decide to use the furnace and air conditioning less?
   3. Why did your friends decide to walk more?
   4. Why couldn't your friends change the amount spent on education and family care?
   5. Why did your friends decide to reduce savings, and what will the long-term effects of that be?