Praxis II Citizenship

Answer: A - A bakery raising its cake prices to compensate for higher sugar prices would create cost-push inflation. Since the one of the costs of production (the price of the sugar) went up, the bakery pushed the additional cost on to the consumers in the form of raised cake prices. An increase in the minimum wage is another example of cost-push inflation. Labor is a production cost, so if a manufacturer raised the price of its product to compensate for its increased labor expenditures that would be cost-push inflation.