What phrase describes inflation resulting from increased production costs?

What phrase describes inflation resulting from increased production costs?

• A. Demand-Pull Inflation
• B. Cost-Push Inflation
• C. Stagflation
• D. Hyperinflation

Answer: (B)

Cost-Push Inflation is the correct term for inflation that arises when the costs of production increase, leading businesses to raise prices in order to maintain their profit margins. This type of inflation is typically driven by factors such as rising wages, increased prices for raw materials, or supply chain disruptions that make it more expensive to produce goods and services. When production costs go up, businesses cannot absorb these costs indefinitely without impacting their profitability. As they pass these increased costs on to consumers, the overall price level in the economy rises, which characterizes cost-push inflation. Understanding this concept is crucial as it differentiates from other types of inflation, such as demand-pull inflation, which is driven by an increase in consumer demand, rather than the costs involved in production.

Cost-Push Inflation is the correct term for inflation that arises when the costs of production increase, leading businesses to raise prices in order to maintain their profit margins. This type of inflation is typically driven by factors such as rising wages, increased prices for raw materials, or supply chain disruptions that make it more expensive to produce goods and services.

When production costs go up, businesses cannot absorb these costs indefinitely without impacting their profitability. As they pass these increased costs on to consumers, the overall price level in the economy rises, which characterizes cost-push inflation. Understanding this concept is crucial as it differentiates from other types of inflation, such as demand-pull inflation, which is driven by an increase in consumer demand, rather than the costs involved in production.