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 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 curve to the left. A negative supply shock can cause stagflation 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) 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.
Read more about Supply Shock: Technical Analysis
Famous quotes containing the words supply and/or shock:
“Municipal laws are a supply to the wisdom of each individual; and, at the same time, by restraining the natural liberty of men, make private interest submit to the interest of the public.”
—David Hume (1711–1776)
“Nothing can shock a brave man but dullness.”
—Henry David Thoreau (1817–1862)