Which of the following will cause an increase in cost of production?

1. Analyze the question The question asks which of the options causes an increase in the cost of production. So we are looking for the type of inflation (or factor) that originates from the supply or cost side of the economy.

2. Explain the concept Types of inflation, by cause:

• Demand-pull inflation: Too much money chasing too few goods. Total demand exceeds supply, so prices rise. The problem starts on the demand side.
• Cost-push inflation: Production costs rise first (higher wages, expensive raw materials, higher fuel or electricity prices, higher import costs due to a weaker naira). Producers pass these costs on to consumers as higher prices. The problem starts on the supply/cost side.
• Structural inflation: Rigidities or bottlenecks in the economy (poor infrastructure, inefficient agriculture, supply inflexibility) prevent supply from responding to demand.
• Hyperinflation: Extremely rapid, uncontrolled price increases (often over 50% per month), usually from excessive money printing. It describes the severity of inflation, not a specific cause.

3. Step-by-step solution

• Demand-pull (D): raises prices because of demand, not production costs. Eliminated.
• Hyperinflation (A): describes the extent of inflation, not a source of rising production costs. Eliminated.
• Structural inflation (C): arises from structural weaknesses; it is not defined by rising input costs. Eliminated.
• Cost-push inflation (B): by definition, it is driven by rising costs of production such as wages, raw materials, and energy. This matches the question.

4. Answer B. Cost push inflation

5. Exam tip Match the name to the cause: "Cost-push" = costs push prices up (supply side), while "Demand-pull" = demand pulls prices up. If you see "cost of production" in the question, think cost-push immediately.