Which scenario is an example of demand-pull inflation?
Answers
Demand-pull inflation comes into force when aggregate demand for a good or service outstrips aggregate supply. An increase in consumer demand is met with sellers increase with more supply. But when additional supply is unavailable, sellers raise their prices. That leads to demand pull inflation.
For example, imagine that there were 100 people who all wanted to buy big screen TVs but only 50 were available. In this scenario, only half of the people are going to end up with what they want. Because of this, everyone is going to be willing to pay a higher amount to get access to the limited resources. The company that owns the TVs can keep jacking up the price until they find a point that customers won’t pay anymore. Those last 50 big screen TVs might sell for much more than what the first batch of TVs sold for.
Inflation is defined as the situation in which the level of prices of goods and services are increasing and the value of purchasing power is decreasing.
An example of demand-pull inflation is - Consumers have more money to buy televisions, and as a result the prices of the televisions and its parts are rising.