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Lecture 52

ECON 1020 Lecture 52: Lecture 52

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ECON 1020
Ryan A.Compton

o982 Costpush inflation: increases in the price level resulting from an increase in resource costs and hence in the perunit production cost Rise in perunit production costs This makes our aggregate supply to change If input costs go up, supply curve shifts to the right If input costs go down, supply curve shifts to the left Supply shocks Example: the price of oil increasing creates a huge change in the production of many goods and increases prices Perunit production cost: the average production cost of the particular level of output; total input cost divided by units of output Perunit production cost = total input cost units of output Rising perunit production costs reduce profits and reduce the amount of output firms are willing to supply at the existing price level As a result, the economys supply of goods and services declines and the price level rises Costssupply are pushing the price level upward, whereas in demand is pulling it upward The major sources of costpush inflation have been socalled supply shocks Abrupt increase in the costs of raw materials or energy inputs have on occasion driven up perunit production costs and thus product prices Core Inflation: Some priceflexible items within the consumer price index particularly food and energy experience rapid changes in supply and demand and therefore considerable price volatility from month to month and year to year In tracking inflation, policymakers want to avoid being misled by rapid, but temporary price changes that may distort the inflation picture They are mainly interested in how rapidly the prices of the typically more stable components of the CPI are rising Core inflation: the underlying increase in the consumer price index after
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