Question

Given below are two statements, one is labelled as Assertion (A) and other one labelled as Reason (R).
Assertion (A): Wage-Push Inflation and Profit-Push Inflation are two factors responsible for the Cost-Push Inflation.
Reason (R): Wage-push inflation takes place when higher wages are secured without a corresponding increase in labour productivity. In light of the above statements, choose the most appropriate answer from the options given below:

• A. Both (A) and (R) are correct and (R) is the correct explanation of (A).
• B. Both (A) and (R) are correct but (R) is NOT the correct explanation of (A).
• C. (A) is correct but (R) is not correct.
• D. (A) is not correct but (R) is correct.

Hint:

Cost-push inflation: Driven by rising wages (without productivity gains) or profit motives pushing up prices.

Answer 1

The Correct Option is A

Assertion (A) is correct: Cost-push inflation occurs when rising production costs drive up prices. Two key drivers are wage-push inflation, where increased wages raise production costs, and profit-push inflation, where firms increase prices to boost profit margins, often in less competitive markets. Reason (R) is also correct and explains part of (A): Wage-push inflation happens when wages rise without a corresponding increase in labor productivity, increasing costs for businesses, which pass these costs to consumers as higher prices. Since (R) directly explains one of the factors (wage-push inflation) contributing to cost-push inflation in (A), option (1) is correct.

Answer 2

Testing the explanation link directly:
Cost-push inflation arises whenever a rise in the cost of inputs (labour, raw materials, profit margins) forces producers to raise prices even without a change in demand. To verify (A), list its stated causes: wage-push and profit-push inflation, both of which are textbook categories of cost-push inflation, so (A) holds. To verify whether (R) explains (A), isolate wage-push inflation specifically: it occurs when wage increases outpace productivity gains, so the extra wage cost per unit of output must be recovered through higher prices. This is precisely the mechanism by which wage-push inflation contributes to cost-push inflation in (A). Since (R) accurately describes the cause-effect chain behind one of the two factors named in (A), it serves as a valid explanation of (A), supporting option (1).