01-31-2014, 01:04 AM
There are various reasons of price in food items in different cities of a country
As we know that , Inflation is defined as a rise in the general price level. In other words, prices of many goods and services such as housing, apparel, food, transportation, and fuel must be increasing in order for inflation to occur in the overall economy.
so two most important factors are causing this issue .
Demand-Pull Inflation and Cost-Push Inflation. Both types of inflation cause an increase in the overall price level within an economy.
Demand-pull inflation
1.Demand-pull inflation for food prices occurs when aggregate demand for food items in an economy rises more rapidly than an economy’s productive capacity. See Chart 1 for an illustration of what will likely happen as a result of this shock. The increase in money in the economy will increase demand for food products from D0 to D1. In the short run, businesses cannot significantly increase production and supply (S) remains constant. The economy’s equilibrium moves from point A to point B and prices will tend to rise, resulting in inflation.
Cost-push inflation, on the other hand, occurs when prices of production process food inputs increase. Rapid wage increases or rising raw material prices are common causes of this type of inflation. The sharp rise in the price of imported oil during the 1970s provides a typical example of cost-push inflation (illustrated in Chart 2). Rising energy prices caused the cost of producing and transporting goods to increase which ultimately became the reason of the high prices of various products of food in Pakistan. Higher production costs led to a decrease in aggregate supply (from S0 to S1) and an increase in the overall price level because the equilibrium point moved from point Z to point Y.
3. other reasons are
i Feudalism in terms of paying low wages to farmers and middle men.
ii transportation cost as i have mentioned earlier
iii unequal distribution of land which causes to produce only few food items and then those prices rise to maximise the utility as well as to maximise the profits.
iv imported goods are another reason which include higher tax rates ( tariffs ) which lead the high food prices.
(In my point of view , these are the reasons which are increasing the food items and hence the overall inflation.)
As we know that , Inflation is defined as a rise in the general price level. In other words, prices of many goods and services such as housing, apparel, food, transportation, and fuel must be increasing in order for inflation to occur in the overall economy.
so two most important factors are causing this issue .
Demand-Pull Inflation and Cost-Push Inflation. Both types of inflation cause an increase in the overall price level within an economy.
Demand-pull inflation
1.Demand-pull inflation for food prices occurs when aggregate demand for food items in an economy rises more rapidly than an economy’s productive capacity. See Chart 1 for an illustration of what will likely happen as a result of this shock. The increase in money in the economy will increase demand for food products from D0 to D1. In the short run, businesses cannot significantly increase production and supply (S) remains constant. The economy’s equilibrium moves from point A to point B and prices will tend to rise, resulting in inflation.
Cost-push inflation, on the other hand, occurs when prices of production process food inputs increase. Rapid wage increases or rising raw material prices are common causes of this type of inflation. The sharp rise in the price of imported oil during the 1970s provides a typical example of cost-push inflation (illustrated in Chart 2). Rising energy prices caused the cost of producing and transporting goods to increase which ultimately became the reason of the high prices of various products of food in Pakistan. Higher production costs led to a decrease in aggregate supply (from S0 to S1) and an increase in the overall price level because the equilibrium point moved from point Z to point Y.
3. other reasons are
i Feudalism in terms of paying low wages to farmers and middle men.
ii transportation cost as i have mentioned earlier
iii unequal distribution of land which causes to produce only few food items and then those prices rise to maximise the utility as well as to maximise the profits.
iv imported goods are another reason which include higher tax rates ( tariffs ) which lead the high food prices.
(In my point of view , these are the reasons which are increasing the food items and hence the overall inflation.)
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