View source for Supply shock

{{short description|Sudden event that temporarily changes the supply of goods or services}}
{{missing|historical examples of supply shocks|date=August 2022}}
{{Macroeconomics sidebar}}
A '''supply shock''' is an event that suddenly increases or decreases the [[supply (economics)|supply]] of a [[commodity]] or [[Service (economics)|service]], or of commodities and services in general. This sudden change affects the [[equilibrium price]] of the good or service or the economy's general [[price level]].

In the short run, an economy-wide negative supply shock will shift the [[aggregate supply]] curve leftward, decreasing the output and increasing the price level.<ref name="Robert 2012">{{citation
 | author = Robert Hall, Marc Lieberman
 | pages = 849
 | url=https://books.google.com/books?id=ESVZoJb9gjgC&q=positive+supply+shock&pg=PA850 |title=Economics: Principles and Applications
 | year = 2012
 | publisher = Cengage Learning
| isbn = 978-1-111-82234-7
 }}</ref> For example, the imposition of an embargo on trade in oil would cause an adverse supply shock, since oil is a key [[factor of production]] for a wide variety of goods. A supply shock can cause [[stagflation]] due to a combination of rising prices and falling output. The [[1973 Oil Crisis]] is often used as the exemplar case of a supply shock, when [[OPEC]] restrictions on production and sale of petroleum resulted in fuel shortages throughout the developed world. 

In the short run, an economy-wide positive supply shock will shift the aggregate supply curve rightward, increasing output and decreasing the price level.<ref name="Robert 2012" /> A positive supply shock could be an advance in technology (a [[technology shocks|technology shock]]) which makes production more efficient, thus increasing output.

== Technical analysis ==
[[File:economics supply shock.png|thumb|upright=1.3|Negative supply shock. The initial position is at point A, producing output quantity Y<sub>1</sub> at price level P<sub>1</sub>. When there is a supply shock, this has an adverse effect on aggregate supply: the supply curve shifts left (from AS<sub>1</sub> to AS<sub>2</sub>), 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 Y<sub>2</sub>, while the price level has been increased to P<sub>2</sub>.]]

The slope of a demand curve determines how much the price level and output respond to the shock, with more inelastic demand (and hence a steeper demand curve) causing there to be a larger effect on the price level and a smaller effect on quantity.
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== See also ==
* [[Shock (economics)]]
:* [[Commodity price shock]]
:* [[Demand shock]]
:* [[Technology shock]]
* [[Macroeconomics]]
* [[Stagflation]]
* [[Supply and demand]]

== References ==
{{reflist}}

== Bibliography ==
* Czech, Brian, ''Supply Shock: Economic Growth at the Crossroads and the Steady State Solution'', (Gabriola Island, Canada, 2013)

{{economics}}
{{United States–Commonwealth of Nations recessions}}

[[Category:Business cycle]]
[[Category:Supply-side economics]]
[[Category:1973 oil crisis]]