Supply shocks

A supply shock is an event that suddenly

increases or decreases the supply of
a commodity or 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.
The diagram to the right demonstrates a
negative supply shock; The initial position is
at point 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 point B; quantity
has been reduced to Y2, while the price
level has been increased to P2.