Supply Shock

AAA

DEFINITION of 'Supply Shock'

An unexpected event that changes the supply of a product or commodity, resulting in a sudden change in its price. Supply shocks can be negative (decreased supply) or positive (increased supply); however, they are almost always negative and rarely positive. Assuming aggregate demand is unchanged, a negative supply shock in a product or commodity will cause its price to spike upward, while a positive supply shock will exert downward pressure on its price.



Supply Shock

INVESTOPEDIA EXPLAINS 'Supply Shock'

When output is increased (decreased), the price of the good decreases (increases) due to a shift in the supply curve to the right (left). The above diagram demonstrates an increase in price due to a decrease in the supply of a good relative to demand.


Supply shocks can be created by any unexpected event that constrains output or disrupts the supply chain, including natural disasters and geopolitical developments such as acts of war or terrorism. The commodity that is widely perceived as being the most vulnerable to negative supply shocks is crude oil, since most of the world's supply comes from the volatile Middle East region.

RELATED TERMS
  1. Equilibrium

    The state in which market supply and demand balance each other ...
  2. Recession

    A significant decline in activity across the economy, lasting ...
  3. Demand

    An economic principle that describes a consumer's desire and ...
  4. Supply Chain

    The network created amongst different companies producing, handling ...
  5. Supply

    A fundamental economic concept that describes the total amount ...
  6. Aggregate Supply

    The total supply of goods and services produced within an economy ...
Related Articles
  1. Economics Basics
    Economics

    Economics Basics

  2. 5 Economic Concepts Consumers Need To ...
    Personal Finance

    5 Economic Concepts Consumers Need To ...

  3. Explaining The World Through Macroeconomic ...
    Options & Futures

    Explaining The World Through Macroeconomic ...

  4. Stagflation, 1970s Style
    Economics

    Stagflation, 1970s Style

Hot Definitions
  1. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  2. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  3. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  6. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
Trading Center