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A supply shock is an event that suddenly changes the price of a commodity or service. It may be caused by a sudden increase or decrease in the supply
Supply

supply is the amount of good or services a business providesSupply may refer to:*Supply and demand theory*Confidence and supply#Supply for a Government budget, in the Westminster System...
 of a particular good. This sudden change affects the equilibrium price.

A negative supply shock (sudden supply decrease) will raise prices and shift the aggregate supply
Aggregate supply

In economics, aggregate supply is the total supply of goods and services produced by a national economy during a specific time period. It is the total amount of goods and services in the economy available at all possible price levels....
 curve to the left. A negative supply shock can cause stagflation
Stagflation

Stagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time. The Portmanteau word "stagflation" is generally attributed to British politician Iain Macleod, who coined the term in a speech to Parliament of the United Kingdom in 1965....
 due to a combination of raising prices and falling output.

A positive supply shock (an increase in supply) will lower the price of said good and shift the aggregate supply curve to the right.






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A supply shock is an event that suddenly changes the price of a commodity or service. It may be caused by a sudden increase or decrease in the supply
Supply

supply is the amount of good or services a business providesSupply may refer to:*Supply and demand theory*Confidence and supply#Supply for a Government budget, in the Westminster System...
 of a particular good. This sudden change affects the equilibrium price.

A negative supply shock (sudden supply decrease) will raise prices and shift the aggregate supply
Aggregate supply

In economics, aggregate supply is the total supply of goods and services produced by a national economy during a specific time period. It is the total amount of goods and services in the economy available at all possible price levels....
 curve to the left. A negative supply shock can cause stagflation
Stagflation

Stagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time. The Portmanteau word "stagflation" is generally attributed to British politician Iain Macleod, who coined the term in a speech to Parliament of the United Kingdom in 1965....
 due to a combination of raising prices and falling output.

A positive supply shock (an increase in supply) will lower the price of said good and shift the aggregate supply curve to the right. A positive supply shock could be an advance in technology (a technology shock
Technology shocks

Technology shocks are events in a Macroeconomics model, that change the production function. Usually this is modelled with an aggregate production function that has a scaling factor....
) which makes production more efficient, thus increasing output.

An example of a negative supply shock is the increase in oil prices during the 1973 energy crisis.

Technical analysis

The diagram below demonstrates a negative supply shock; The initial position is at point A, producing Y1 quantity, at P1 prices. Then there is a supply shock, this has an adverse effect on aggregate supply, the supply curve shifts left (from AS1 to AS2), while the demand curve stays in the same position. The intersection of the supply and demand curves has now moved and the equilibrium is now point B, quantity has been reduced to Y2, while prices have been increased to P2.

Economics Supply Shock

See also

  • Demand shock
    Demand shock

    In economics, a demand shock is a sudden event that increases or decreases demand for Good or Service temporarily. A positive demand shock increases demand and a negative demand shock decreases demand....
  • Macroeconomics
    Macroeconomics

    Macroeconomics is a branch of economics that deals with the performance, structure, and behavior of a national or regional economy as a whole....
  • Stagflation
    Stagflation

    Stagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time. The Portmanteau word "stagflation" is generally attributed to British politician Iain Macleod, who coined the term in a speech to Parliament of the United Kingdom in 1965....
  • Supply and demand
    Supply and demand

    ...