Barnes_ECO110_Week4Assignment

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Economics

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Jan 9, 2024

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1 Week 4 Assignment Peter Barnes ECO110 Isaac Boring November 3, 2023

2 Impact of Economics on Daily Living Describe Budget Changes Based on the information provided, Charles and Ebony maintained their income at the same level this year compared to last year. However, there were some significant changes in their expenditures. For example, they had to allocate an additional $900 towards rent, which increased from $8,800 to $9,700. Their food expenses also increased by $400, going from $4,200 to $4,600. They had to reduce some of their expenses to offset these increases, such as cutting their savings in half from $1,500 to $750. They also reduced personal spending by $150 and entertainment expenses by $400. On a positive note, they could maintain their healthcare spending due to excellent health and Charles's employer-provided insurance, transportation by carpooling a few days a week, utilities, education, and cell phone expenses at the same level. Describe an Economic Trend Charles and Ebony are affected by rising cost of living. Charles and Ebony were informed by their landlord of a rent increase due to the rising housing cost. As a result, an additional expense of $900 was added to their planned budget statement, bringing their rent cost from $8,800 to $9,700. Unfortunately, their income remained the same, so they had to make some adjustments to counteract the added cost. They decided to cut their savings in half from $1,500 to $750 and reduced their personal spending by $150 and entertainment expenses by $400. Apply Economic Concepts Scarcity, Tradeoff Decisions, or Opportunity Costs Charles and Ebony are faced with a challenging situation where they have to prioritize their expenses. They have realized that their resources are limited and they need to make tough decisions to manage their finances. As a result, they have decided to cut down their personal spending by $150 and entertainment expenses by $400. This is a common issue caused by the economic concept of scarcity, were individuals have endless wants and needs but limited resources to fulfill them (Soomo Learning, 1). Supply and Demand When Charles and Ebony cut back on their purchases of certain foods due to price increases, it is an example of the law of demand. This law states that when the cost of a product or service rises, consumers typically reduce their demand for it. This is because the higher price makes the item comparatively less affordable and less appealing when compared to other alternatives. At the same time, suppliers may increase the amount of the product in response to the higher price (Soomo Learning, 1). Therefore, supply and demand plays a significant role in determining the prices and quantities of goods, as well as Charles and Ebony's decision to decrease their demand for certain food items in the face of additional expenses such as rising housing costs. Compound Growth

3 Compound growth is highly relevant to Charles and Ebony's budget. By investing their savings in a compound interest account, they can earn interest on their principal amount as well as on the accumulated interest (Soomo Learning, 1). Over time, this can lead to significant growth in their savings, allowing them to reach their financial goals faster. With a low-interest savings account, their savings may not grow as fast, making it harder to reach their long-term financial goals. Therefore, considering other options with higher interest rates and compound growth can be a smart move for Charles and Ebony to secure their financial future. Offer Advice Managing finances can be a challenge, especially when faced with the rising cost of living. For Charles and Ebony, it's important to prioritize their expenses and consider increasing their income to stay afloat. This can be achieved through asking for a raise at work or taking on a side hustle. With the extra income, they can also build up an emergency fund and invest for their future. Investing in a compound interest account with a higher interest rate can help them reach their financial goals faster. To effectively manage their finances and secure their future, Charles and Ebony should prioritize expenses, track spending, build an emergency fund, increase their income, and invest wisely. Reflect on How Economics Affects You The economic trend of employment within the last year has negatively impacted my personal life and finances. I had to apply for SNAP benefits and Medicaid to help cover food and medical expenses. If the current economic trend persists for another year or two, I anticipate struggling with rent payments once my emergency funds run out. Although SNAP and Medicaid benefits are helpful, they do not cover car notes, rent, or utilities.

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4 Sources 1. Soomo Learning. 2023. Taking Charge of Your Economic Future. p. 1.3, 1.4, 2.5. https://www.webtexts.com

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