What is the difference between a beneficial and an adverse supply shock?Macroeconomics

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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A supply shock is a sudden change in supply that causes the equilibrium price and quantity of a good or service to change.  An adverse supply shock is one that causes supply to go down.  This is something like an oil embargo.  If all of a sudden the US economy can get much less oil, the supply of pretty much everything will fall and prices will rise.

By contrast, a beneficial supply shock causes supply to go up.  This would be what would happen if a new invention caused the price of producing a product to go down suddenly.  This would increase supply and the sale price of the good would decrease.

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