The scenario that best fits an example of cost-push inflation is an increase in workers’ wages raises the production of cost of cars, and car prices as a result.
Cost-push inflation takes place when there is an increase in overall prices as a result of an increase in the cost of materials and wages. If the cost of production is very high it can decrease the amount of total production.
<h2>Further Explanation</h2>
Also, if the demands of goods remain the same, the increases in overall prices from production are passed down to the customers resulting in cost-push inflation
An overall increase in the cost of production is one major factor that causes cost-push inflation. For example, if the prices of materials used in production increase, it will lead to higher costs.
Some of the causes of cost-push inflation include
- Natural disasters such as floods, fires, earthquakes, and tornadoes can create cost-push inflation. They are also regarded as unexpected causes
- Increase in the cost of materials used in production or manufacturing
- Increased labor costs can also result in cost-push inflation
- Therefore, an increase in workers’ wages raises the production cost of cars and car prices as a result.
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KEYWORDS:
- cost-push inflation
- prices
- cost of car
- economy
- labor
