Question

13b）How does "demand-pull" inflation increase the prices of goods and services in our economy? A good example of demand-pull inflation is found in the price of housing in Hawaii. Why is the increase in the price of housing "demand pull" inflation instead of "cost push" inflation?

How does "cost-push" inflation increase the prices of goods and services in our economy? How does cost-push inflation influence the price of classes in the UH system? Do you think that the price of classes is influenced more by "cost push" or "demand pull" inflation?

Answer 1

Demand-pull inflation occurs when the demand for a particular commodity increases to such an extent that it outdoes the supply. In this situation, supply becomes restricted, hence prices are raised & inflationary pressure is created.

On account of the all-time low ROI,the real estate investors are rising in numbers since the return on investment in the housing sector is superior to that of stock markets. For an average household wanting to purchase a home, the cost of purchasing/ building a new house is also at a record low. We can conclude that inflation in housing sector is demand-pull inflation

Cost-push inflation is when the price of commodities increase on account of the increase of overhead costs for the firms that produce commodities. As the firms 'push' their rising costs onto the customer, it is known as cost-push inflation.

Universities are subject to inflationary pressure for food/ fuel/ electricity etc.(as are the households in an economy) . Additionally, some inflation is due to augmented expenditure on facility construction. However, majority of these capital expansions are funded thru debt & donations. The overpowering cost head is labour expenses. Between 1993 to 2007, overall university expenditures increased 35 per cent. However, administration costs escalated 61 per cent & instruction costs escalated 39 per cent. We can conclude that inflation in UH system is cost-push inflation.