What is inflation? Discuss the effects of inflation on 'Producers'.
Inflation: "A state in which the value of money is falling, i.e. price are rising." In other words, inflation is a rise in price levels with additional characteristics or conditions. It is incompletely anticipated; it does not increase to further rises, it does not increase employment and real output; it is faster than some safe rate; it arises from the side of money, it is measured by prices net of indirect taxes and subsidies; and/or it is irreversible.
Producers - During inflation, the producers and businessmen gain in the short period. Usually the cost of production does not rise as fast as the price of their product and so there is an artificial margin of profit. As against this they may also be affected adversely on the long run. If the price level goes on increasing, the total consumption of their product would fall. The reduced consumption will ultimately rise the cost of production per unit and reduce the profits.
Inflation: "A state in which the value of money is falling, i.e. price are rising." In other words, inflation is a rise in price levels with additional characteristics or conditions. It is incompletely anticipated; it does not increase to further rises, it does not increase employment and real output; it is faster than some safe rate; it arises from the side of money, it is measured by prices net of indirect taxes and subsidies; and/or it is irreversible.
Producers - During inflation, the producers and businessmen gain in the short period. Usually the cost of production does not rise as fast as the price of their product and so there is an artificial margin of profit. As against this they may also be affected adversely on the long run. If the price level goes on increasing, the total consumption of their product would fall. The reduced consumption will ultimately rise the cost of production per unit and reduce the profits.
