What are examples of demand-pull inflation?

1 Answer
Feb 21, 2016

Here is a very simplified little story to explain:)


Quickly made on paint!
Imagine that you make 20 cookies every week. You sell 18 of these cookies at 50p each to neighbours.

Quickly created on paint!

If your neighbours start earning more (and they now have £1 to spend on cookies), then some people may want to buy two cookies. Now, there is demand for 36 cookies, you are out of stock by 16 cookies.

Quickly created on paint!

So, you raise the price to £1 each.
Now, each of your neighbours will buy 1 cookie like before. They get the same amount of cookies and will have the same amount of money left. You will have made more money as demand for your product has gone up (however, it may be that when you want to buy a cookie, you have to pay £1 too!)

Hope this helps; let me know if I can do anything else:)