Which economic situation best describes cost-push inflation?
A. Too much money chasing too few goods
B. High consumer demand
C. Increase in production costs
D. Increase in government spending
Answer (2)
The correct answer is letter C. Increase in production costsCost-push inflation happens when the cost to produce goods goes up. This could be due to higher prices for raw materials, energy, or wages. Producers will raise the prices of the final products to recover their costs.A real example in the Philippines is when global oil prices increase. Since we import most of our fuel, this makes transportation and electricity more expensive. As a result, prices of food and goods also go up because transporting them also costs more. This shows how external factors can create inflation even if local demand remains the same.
The correct answer is C. Increase in production costs.Cost-push inflation occurs when the overall price levels rise due to an increase in the cost of production. This could be due to higher wages, increased prices for raw materials, or supply chain disruptions. As production becomes more expensive, businesses pass on these costs to consumers in the form of higher prices, leading to inflation.Other Options A describes demand-pull inflation, not cost-push.B is also related to demand-pull inflation.D (government spending) may influence inflation, but it doesn't specifically define cost-push inflation.
