I understand that demand-pull type of inflation is a result of companies raising prices when consumers have more money? But why would they raise their prices and not just enjoy the fact that purchasing power of the consumers has increased? Is that a result of some sort of inherent greed that you see an opportunity to get even more money by raising prices? Why not just enjoy the fact that many people can afford your product?
In: Economics
> But why would they raise their prices and not just enjoy the fact that purchasing power of the consumers has increased?
Because you only have so much supply. Let’s say you’re selling 10 widgets for $10 each. You can only make 10 per day and you sell out at the end of the day each day.
Suddenly, people want more of your widgets. There’s a line out the door and you sell out in the first half hour of your day. You want to scale up production but that’s gonna take a few months and even then, you can only make an extra 2 widgets per day.
So what do you do? Do you stand idly by and don’t change the price? Or do you raise the prices so you still sell out each day but you make more money?
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