Demand Shock

What is a 'Demand Shock'

A demand shock is a sudden surprise event that temporarily increases or decreases demand for goods or services. A positive demand shock increases demand, while a negative demand shock decreases demand. Both positive and negative demand shock have an effect on the prices of goods and services.

BREAKING DOWN 'Demand Shock'

When demand for a good or service increases (decreases) the price of that good or service typically increases (decreases) due to a shift in the demand curve to the right (left). This type of shock can come from such things as tax cuts or increases, loosening or tightening of the money supply and increases or decreases in government spending.

For example, a tax cut reduces the amount of money that taxpayers owe the government and frees up money for personal spending. This money is then used by taxpayers to consume certain products and services, which bids up their prices.

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RELATED FAQS
  1. What are some common examples of demand shock?

    Discover some common examples of demand shock. Demand shocks lead to rapid increases or decreases in demand that catch everyone ... Read Answer >>
  2. What are common examples of aggregate demand shocks?

    Learn about some common examples of demand shocks in the economy, how they occur and function, and what it means to aggregate ... Read Answer >>
  3. How long does the average demand shock affect pricing?

    Read about the nature of demand shocks in an economy, how they correlate with prices, and what determines the length and ... Read Answer >>
  4. Why do supply shocks occur and who do they negatively affect the most?

    Take a deeper look at the nature of supply shocks, an economic phenomenon that dramatically changes the equilibrium level ... Read Answer >>
  5. How does a lack of demand affect financial markets?

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    Learn more about the law of demand and if exceptions exist for different products. Find out more about how price elasticity ... Read Answer >>
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