Supply Shock

Definition

A supply shock refers to a sudden and unexpected change in the availability or cost of key inputs (such as labor, raw materials, or energy) that affects the overall production capacity of an economy. It can lead to a rapid decrease or increase in the supply of goods and services.

Related terms

Demand Shock: A demand shock occurs when there is an unexpected change in consumer spending patterns or overall demand for goods and services.

Aggregate Demand (AD): Aggregate demand represents the total amount of goods and services demanded by households, businesses, government, and foreign buyers within an economy.

Long-Run Aggregate Supply (LRAS) Curve: The long-run aggregate supply curve shows the relationship between the quantity of real GDP supplied by firms and the price level once all input prices have fully adjusted.