Which description best explains cost push inflation?

• A. When prices rise due to demand exceeding supply.
• B. When prices rise due to rising consumer confidence.
• C. When prices rise due to government tariffs.
• D. When prices rise due to an increase in the cost of production.

Answer: (D)

Cost-push inflation happens when prices rise because the costs of making goods and delivering services go up. When production costs increase—such as higher wages, more expensive raw materials, or pricier energy—businesses raise their selling prices to maintain profits. This tends to push the overall price level higher, sometimes with output easing as firms cut back or slow production in response to the higher costs. It’s different from inflation driven by demand, where prices rise because people are willing to spend more. Tariffs can raise costs, but the core idea is that the rise in prices comes from higher production costs rather than simply stronger demand.