An increase in the price of which of the following products is most likely to have a broad ripple effect, raising the prices of many other goods and services and thereby contributing significantly to inflation?

Introduction / Context:
Inflation is a sustained increase in the general price level of goods and services in an economy. Some key commodities play a central role in production and transportation, so changes in their prices can have a cascading effect on the prices of many other items. One such commodity is petroleum, which influences fuel costs for transport, electricity generation, and industrial processes. This question asks which product, when its price rises, is most likely to create a broad ripple effect leading to higher overall inflation.

Given Data / Assumptions:

• The products listed are petroleum, medicines, smartphones, automobiles, and luxury watches and jewellery.
• We consider how widely each product is used as an input in the production and distribution of other goods and services.
• A ripple effect means that the price increase spreads through many sectors, not just the market for the product itself.
• The focus is on overall economy wide inflation, not on isolated price increases.

Concept / Approach:
Petroleum products such as petrol, diesel, and other fuels are essential inputs in transportation and logistics. Almost all goods move at some stage by road, rail, sea, or air, and fuel is a major cost component in these activities. Petroleum is also used in many industrial processes and in the production of plastics and chemicals. When fuel prices rise, transportation costs increase, which can prompt producers and retailers to raise the prices of a wide range of goods and services. This cost push effect can spread throughout the economy and contribute significantly to inflation. In contrast, price increases in products that are not widely used as inputs, such as smartphones or luxury goods, have a much more limited impact on overall inflation.

Step-by-Step Solution:
Step 1: Identify which of the listed products is a basic input used directly or indirectly in the production and distribution of many other goods.Step 2: Recognise that petroleum and fuels are used in transport, farming, manufacturing, and many service industries.Step 3: Understand that higher fuel costs increase transportation and production costs for a wide range of goods, from food to manufactured products.Step 4: Note that when businesses face higher costs, they often pass these on to consumers in the form of higher prices.Step 5: Compare petroleum with medicines, smartphones, automobiles, and luxury goods, which are either more specialised or have narrower uses as inputs.Step 6: Conclude that an increase in petroleum prices is most likely to cause a broad ripple effect on other prices and contribute to inflation.

Verification / Alternative check:
Economic reports and news analysis frequently highlight the impact of rising fuel prices on inflation indices. When international crude oil prices increase, countries that import petroleum often experience higher domestic fuel prices, followed by increases in transportation fares, food prices, and even service charges. This pattern has been observed repeatedly and is a standard example of cost push inflation. In contrast, while prices of smartphones or automobiles may rise, their effect on the general price level is more limited because they are not universal inputs.

Why Other Options Are Wrong:
Medicines are important for health, and price increases can affect households, but they do not significantly raise the cost of producing most other goods and services. Smartphones and consumer electronics are widely used but are not core inputs to the supply chain of most products; their price changes mainly affect consumer budgets in a specific category. Passenger automobiles are durable consumer goods, and their price changes do not directly feed into the cost structure of most other items. Luxury watches and jewellery represent a narrow segment of consumption and have minimal impact on general inflation.

Common Pitfalls:
Students sometimes focus on how important a good seems for daily life rather than on its role as a production input. For example, smartphones feel essential to many individuals, but their prices do not directly enter the cost of producing food or clothing in most cases. To correctly identify drivers of inflation, it is important to think about goods like fuel and energy that sit at the base of the production and transport system and therefore influence prices across many sectors.

Final Answer:
An increase in the price of petroleum and other fuel products is most likely to create a ripple effect and raise the prices of many goods and services, contributing significantly to inflation.