4 Marks Each

Question

Which reasons are responsible for price rise?

Vidyadip · Accepted Answer

The following reasons are responsible for price rise:
$1.$ Money Factor:

The government gets its supply of money from the Reserve Bank of India or the other banks.
This in turn increases the money supply of the people.
As the supply of goods is not enough to meet the demand of the people the prices will rise.
The people in turn demand more wages, salaries, so the demand for goods and services increases and the prices also increase.

$2.$ Increasing population:

Rapid increase in population leads to increase in demand for goods and services causing an imbalance between demand and supply, so prices rise.

$3.$ Availability of raw material at high costs:

If the price of raw material increases, it increases the cost of production so ultimately the prices of finished goods and services increases.
The increase in the prices leads to an increase in the demand for higher wages and salary when this is met it will increase the cost of production so again the vicious cycle of price rise will continue.

$4.$ Price rise by the government:

The government increases the price of certain goods and services by way of administrative orders.
It also increases duties like excise and sales tax which ultimately increase the prices of the goods and services. There is a frequent increase in the minimum support price for food grains and agricultural products which will in turn lead to a price rise.
The increase of railway fares, petroleum, natural gas, coal, steel, electricity will lead to increase in prices of other goods and services.

$5.$ Hoarding and profiteering:

When the producers and traders expect rise in near future prices they hoard goods.
This creates artificial scarcity in the market.
Then they charge high prices and indulge in black marketing and profiteering.

$6.$ Black Money:

It is money unaccounted for in books of accounts.
The people who have black money are ready to buy goods and services at a high price.
Their demand for goods and services increases the price.
This leads to malpractices like hoarding and betting which will create scarcity in the supply of goods and thus the prices rise.

Answer