cost push inflation logic chainc

cost push inflation

occurs when there is an increase in the costs of production for firms, leading them to raise prices

pt 1

this would be from a shock causing an increase in factor prices such as an increase in the global price of oil

pt 2

this reduces their willingness to supply at a given price level

as firms face higher production costs they respond by increasing the prices of their goods and services to maintain their profit margins

pt 3

this increase in prices is passed onto consumers and happens across a variety of goods and services

pt 4

this leads to a rise in the general price level throughout the economy

therefore the overall effect is a rise in the general price level which defines cost push