I understand why inflation currently happens. The price of gas goes up, so the cost of transporting goods goes up, so the cost of production goes up, etc etc. I can wrap my head around that. But how did it start? What was the first thing to go up in cost, creating this chain reaction? Could it have been avoided if the initial thing did not rise in cost?
In: Economics
Inflation is generally a catch all term but it doesn’t just mean prices go up for something. It means that the cost of something goes up across the entire demand curve and usually across multiple things. Prices can rise without inflation if there’s a change in supply or demand. When supply and demand return to normal then so do prices. If prices don’t return to normal then that would be inflation (or possibly deflation)
Inflation is an ongoing thing that probably predates written history. If we trade goods back and forth but I develop a new technique allowing me to yield more corn. I now have more corn to trade. I can buy more stuff (I have more money). Sellers react to this in one of two ways. Raising prices or producing more. If they can’t produce more then prices go up to meet the the shift in demand.
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