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In: Economics

Identify and contrast the differences between the rise in prices due to inflation and the rise...

Identify and contrast the differences between the rise in prices due to inflation and the rise in prices in microeconomic markets. Provide examples and explain your answer.

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Expert Solution

Inflation is crudely defined as an overall increase in price level of the economy. This means that prices of almost all the goods and services are more than they were before. Inflation may be a result of a growth spurt in the economy, supply shortages, natural calamity, etc. It affects almost all industries of the economy.

On the other hand, rise in prices in microeconomic market is a result of demand and supply imbalances in that market alone. If demand is greater than supply in any microeconomic market, it would put upward pressure on the price and it will rise. For instance, say demand for organic foods suddenly increases due to people following this new trend. Now, till the supply matches with the newly created demand, prices will rise. Also, prices in this case will rise in organic foods market alone. Meaning, it will not affect any other market, let's say, market for automotive parts.

Rahul Sunny answered 1 year ago
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