Question

Which scenario is an example of cost-push inflation?

Answer 1

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.

Further Explanation

Also, if the demands of goods remain the same, the increases in overall prices from production are passed down to the consumers 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.

LEARN MORE:

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KEYWORDS:

• cost-push inflation
• prices
• cost of car
• economy
• labor

Answer 2

B) An increase in workers’ wages raises the production cost of cars, and car prices rise as a result.

Explanation:

This shift can happen from an improvement in the cost of production or a decrease in the volume of production. An increase in the Aggregate Market curve effects Demand-Pull inflation. Rising prices create a request for higher wages, which directs to higher production costs and further higher pressure on prices.