Making things costs more money when ingredients get more expensive or when you need to use more of them.
Imagine you're baking cookies for a big party. You start with 2 cups of sugar, but now you need 10 cups because there are so many guests! That means your costs go up because you have to buy more sugar, and maybe even bigger bags of it, which might be pricier.
Also, sometimes the people who help you make the cookies (like the oven or the mixing machine) need a little extra time or fuel. If they're working harder or longer, that means more money for them too, and that gets passed on to you.
Another reason is when the tools you use get broken or worn out, like your cookie cutter getting all squished. You have to buy new ones, which makes everything a bit more expensive.
So, just like how baking cookies can cost more if you need more sugar or bigger bags, making things costs more money if ingredients, tools, and helpers get more expensive or work harder.
Examples
- A factory needs more money to make toys because the plastic is now twice as expensive.
- Workers are asking for higher pay, which makes each toy cost more to produce.
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See also
- What are energy prices?
- What are costs?
- What is Cost-push inflation?
- George Selgin: Do we really need Central Banks?
- How Does 4 Failed Currencies Work?