gcse economics - the big picture: inflation - causes

There are 2 main reasons why prices could increase in our economy

1. COST PUSH

An increase in costs may lead to an increase in prices.

Examples:
Raw material prices ( possibly from abroad) increase...
...Costs to business increase...
...Business still wants to make a profit...
...Business puts its prices up...
...Consumers can buy less with their money...
...Workers demand and receive pay increases...
...Businesses costs increase again...
...Businesses put prices up again

On and on and on

2. DEMAND PULL

If there is too much demand for goods and services in the economy then prices may be forced upwards.

Individuals and businesses experience a feelgood factor ( maybe they have just had a tax cut)

They wish to buy more goods and services

Only so many goods and services are available at present

Suppliers experience so much demand for their limited number of goods that they decide to put up prices

ACTION

a. In the cost push example, why are workers demanding higher wages?
b. How does a ticket tout use demand pull to increase their ticket prices?
c. How could a demand and supply diagram show demand pull inflation?

These GCSE Economics revision notes have been kindly provided by Peter Davies of Mill Hill School, Ripley Keep Up-todate with your GCSE Economics - Subscribe Free to Economics in the News by Email

 

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