What Is Demand-Pull Inflation?
Demand-pull inflation is the upward pressure on prices that follows a shortage in supply, a condition that economists describe as "too many dollars chasing too few goods."
What is the most common cause of inflation?
When the aggregate demand in an economy strongly outweighs the aggregate supply, prices go up. This is the most common cause of inflation . In Keynesian economic theory, an increase in employment leads to an increase in aggregate demand for consumer goods. In response to the demand, companies hire more people so that they can increase their output.
Why do companies increase their prices?
Inflation expectations: Companies may increase their prices in expectation of inflation in the near future. More money in the system: An expansion of the money supply with too few goods to buy makes prices increase.
Why do companies hire more people?
In response to the demand, companies hire more people so that they can increase their output. The more people firms hire, the more employment increases. Eventually, the demand for consumer goods outpaces the ability of manufacturers to supply them. There are five causes for demand-pull inflation : A growing economy: When consumers feel confident, ...
What happens to consumer spending when borrowing rates are low?
With almost everyone gainfully employed and borrowing rates at a low, consumer spending on many goods increases beyond the available supply. That's demand-pull inflation in action.
What is the effect of a growing economy?
A growing economy: When consumers feel confident, they spend more and take on more debt. This leads to a steady increase in demand, which means higher prices. Increasing export demand: A sudden rise in exports forces an undervaluation of the currencies involved. Government spending: When the government spends more freely, prices go up.
What is the meaning of "more money in the system"?
More money in the system: An expansion of the money supply with too few goods to buy makes prices increase.
What happens when demand is aggregated across different locations?
For example, if demand is aggregated across different locations, it becomes more likely that high demand from one customer will be offset by low demand from another.
Why is inventory management important?
1) Inventory Management – as mentioned above the less variability in demand the less safety stock is required to buffer against fluctuations. In addition, the more consolidated the inventory, the easier it is to manage overall and the less risk of obsolescence. Apple has very few products and options therefore it comes as no surprise that according to Gartner they have the highest inventory turnover in the electronics industry - 74, which means Apple turns its entire inventory every five days.
What is risk pooling?
Risk Pooling: A statistical concept that suggests that demand variability is reduced if one can aggregate demand, for example, across locations, across products or even across time.
What is Benetton famous for?
Benetton is famous for using postponement tactics at the actual sequencing point of the production process, whereby dying of the garments is not completed until the agent network have provided market intelligence on what particular products are in demand in which locations.
What is push pull strategy?
4) Push-pull strategy – in a push-pull strategy the initial stages of the supply chain are operated on push while the final stages are operated on pull. So for instance, parts could be manufactured but assembled only after there is a good demand signal. The extreme case of this is Dell Direct where the components are ready and assembled only after the order is received from the customer.
What is the only theoretical concept you need to understand to make better supply chain decisions?
If there is only one theoretical concept you need to understand to make better supply chain decisions, it is Risk pooling.
Who is Edith Simchi-Levi?
About the Author: Edith Simchi-Levi was for many years the Vice President of Operations of LogicTools, a supply chain optimization software and service provider, now part of IBM. She has extensive experience in software development and numerous consulting projects in logistics and supply chain management.
What Does Resource Pooling Mean?
Resource pooling is an IT term used in cloud computing environments to describe a situation in which providers serve multiple clients, customers or "tenants" with provisional and scalable services. These services can be adjusted to suit each client's needs without any changes being apparent to the client or end user.
Techopedia Explains Resource Pooling
The idea behind resource pooling is that through modern scalable systems involved in cloud computing and software as a service (SaaS), providers can create a sense of infinite or immediately available resources by controlling resource adjustments at a meta level.
