Final answer:
Increases in the cost of goods and services can be attributed to factors such as inflation, higher input costs for businesses, and changes in supply and demand. These increases affect purchasing power and standard of living, and whether businesses pass these costs on to consumers can depend on the price elasticity of demand.
Step-by-step explanation:
Several factors could contribute to the increase in the cost of goods and services experienced by Izzy Seltzer. Firstly, inflation could be a factor, where the general price level for goods and services rises, and purchasing power falls. If inflation occurs, it may mean that Izzy's salary isn't increasing as fast as the cost of goods and services. High inflation rates can make it challenging to discern whether price changes are due to actual inflation, shifts in supply and demand, or both.
In addition to inflation, increased costs of key inputs for businesses can lead to higher consumer prices. For instance, if the price of coffee beans spikes on the world market, the local coffee shop may pass these costs onto Izzy in the form of pricier coffee. This is often related to a company's struggle to maintain profitability in the face of rising input costs. The degree to which businesses can transfer these costs depends on the price elasticity of demand for their products.
Lastly, wage growth within an economy may be lower than the growth rate of the price of goods and services, leading to a decrease in purchasing power and standard of living, even if on the surface wages have risen by the same percentage as costs.