The Organization of Petroleum Exporting Countries (OPEC) controls much of the world's production of oil. If its members decide to lower their daily oil production, the price per barrel can rise. This can result not only in increased gasoline prices, but a general increase in prices over much of the economy because of the increased cost of transportation and production. This inflationary end result is predicted by the economic theory of __________.
History · High School · Thu Feb 04 2021
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The inflationary end result described in the scenario is predicted by the economic theory of cost-push inflation.
Cost-push inflation occurs when the costs of production increase, leading producers to raise prices to maintain their profit margins. In the context of the scenario, if OPEC decides to lower daily oil production, it can result in an increase in the cost of transportation and production for various industries that rely on oil. As a consequence, businesses may pass on these increased costs to consumers in the form of higher prices for goods and services. This phenomenon can contribute to a more general increase in prices throughout the economy.