Econ Question.

The most likely initial (short-run) effect of demand-pull inflation is an increase in: a) Finished Goods prices b)Commodity Prices c)Employee Wages. I am not getting what is the difference between finished goods prices and commodity prices.

Finished goods would comprise cars and dishwashers and tennis shoes and lawnmowers and toothpaste and whatnot. Not all cars are identical and interchangeable. Not all dishwashers are identical and interchangeable. Similarly for tennis shoes, lawnmowers and toothpaste. They’re not commodities.

Gold, wheat, copper, oil, and cocoa are commodities: gold is gold; wheat is wheat, copper is copper, and so on.

(Yes, I know that wheat varies from place to place, as does oil; the commodities are wheat that meets particular specifications, and the oil that meets particular specifications.)

Hey thanks magician.

So what do you think is the answer.

Employee wages take time to adjust to higher prices (inflation) and they are not affected at least in the short run so that’s not the answer.

Commodity prices will increase due to demand pull inflation but that also takes time. Let us take the example of Wheat (a commodity). If I (consumer) am feeling hungry, I would go and buy Bread (which is a finished good item). I would not go and buy raw wheat. So that leaves us with option A, which I feel is the right answer.

@Finkid. That’s what.

But the answer given is B. Shocking.

Embarrassed. sad

Have not they given any explanation as to why option B is the answer?