Question

Which scenario is an example of cost-push inflation?

Consumers have more money to buy cars, and the prices of cars and car parts rise as a result.
An increase in workers’ wages raises the production cost of cars, and car prices rise as a result.
The demand for cars falls as consumers have less disposable income, and car prices fall as a result.
A government bailout helps car manufacturers lower their costs, and car prices fall as a result.

Answer 1

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

Explanation: Cost-push inflation occurs when higher production costs (e.g., wages, raw materials) force firms to raise prices. The first is demand-pull inflation; the others involve falling prices.