Supply shock

Heterodox

A give shock is an event that suddenly increases or decreases a supply of a commodity or service, or of commodities in addition to services in general. This sudden change affects the equilibrium price of the return or utility or the economy's general price level.

In the short run, an economy-wide negative give shock will shift the aggregate supply curve leftward, decreasing the output together with increasing the price level. For example, the imposition of an embargo on trade in oil would defecate an adverse supply shock, since oil is a key factor of production for a wide species of goods. A supply shock can earn stagflation due to a combination of rising prices and falling output.

In the short run, an economy-wide positive supply shock will shift the aggregate supply curve rightward, increasing output and decreasing the price level. A positive supply shock could be an keep on in engineering a technology shock which lets production more efficient, thus increasing output.

Technical analysis

The diagram to the correct demonstrates a negative supply shock; The initial position is at ingredient A, producing output quantity Y₁ at price level P₁. When 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 segment B; quantity has been reduced to Y₂, while the price level has been increased to P₂.

The slope of the demand curve determines how much the price level and outputto the shock, with more inelastic demand and hence a steeper demand curve causing there to be a larger issue on the price level and a smaller effect on quantity.