Wage-price spiral

Okay kiddo, imagine that you have a lemonade stand and you sell cups of lemonade to your friends for $1 each. Now imagine that you work really hard and make a lot of lemonade and your friends all like it. They want more and are willing to pay a little more for it. So you raise the price to $1.50 for each cup.

Now, your friends who bought lemonade from you before notice that it costs more, and they might start to think that you're making more money than you used to. They might start to ask for a little more money too, maybe $1.50 to mow your lawn instead of $1, because they think you can afford it.

You might realize that you need to pay more money to your friend to mow your lawn, because you also need to make more money to keep selling lemonade at the new higher price. So you start to pay your friend more, and they are happy because they have more money.

But then, your other friend who washes your car notices that your lawn-mower friend is getting paid more, and they also want more money for washing your car. Then your other friends who do other jobs for you notice too and they also want more.

So everyone is now asking for more money for their work, and you have to keep raising the price of your lemonade to make enough money to pay everyone. And then your friends notice that the lemonade costs even more, so they demand even more money for their work to afford the higher price of the lemonade. It's like a never-ending cycle of rising prices and wages, which can be called a wage-price spiral.

This can happen in the real world too, when the price of things we buy, like food and clothes, goes up and people want to earn more money to afford it. And when people earn more money, companies have to raise the prices of their goods and services to pay the higher wages, which can lead to higher prices for everyone.