Advantages And Disadvantages Of Cost Push Inflation

1540 Words7 Pages
3.0 DISADVANTAGES OF MINIMUM WAGES IMPLEMENTATION 3.1 Cost push inflation. A minimum wage implementation can cause market to suffer cost push inflation. Cost push inflation is inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods. While the demand remains constant, the prices of commodities increase causing a rise in the overall price level. This is in essence cost push inflation. CITATION The l 17417 (The Economic Times, n.d.) The overall price level increases due to higher costs of production which reflects in terms of increased prices of goods and commodities which majorly use these inputs. This is inflation triggered from supply side i.e. because of less supply. The opposite effect of this is called demand pull inflation where higher demand triggers inflation Apart from rise in prices of inputs, there could be other factors leading to supply side inflation such as natural disasters or depletion of natural resources, monopoly, government regulation or taxation, change in exchange rates, etc. Generally, cost push inflation may occur in case of an inelastic demand curve where the demand cannot be easily adjusted according to rising prices. In this case, the firm will have to increase the price of the item their produced to cover up the cost that they already spend for their employee’s minimum wage implementation. This is important as the firm will have

More about Advantages And Disadvantages Of Cost Push Inflation

Open Document