Legal Definitions - demand-pull inflation

Definition: Demand-pull inflation is a type of inflation that occurs when there is an excess of demand over supply, leading to a general increase in prices and a fall in the real value of money.

Example: A popular toy becomes the must-have item of the holiday season. As demand for the toy increases, the manufacturer raises the price to maximize profits. However, the demand continues to exceed the supply, causing retailers to raise the price even further. This leads to an increase in the price of the toy, as well as other related products, causing demand-pull inflation.

Explanation: In the example, the excess demand for the toy causes the price to increase. As a result, consumers may have to pay more for the toy than they would have otherwise. This increase in price can lead to a general increase in prices for related products, such as other popular toys or holiday decorations. This is an example of demand-pull inflation because the increase in demand for the toy caused an increase in prices for related products.