In economics, an adverse supply shock is a sudden shift in aggregate supply. These shocks can be either positive or negative.
A positive supply shock will increase the number of goods and services supplied by firms and push prices down. When there’s an adverse demand shock, it means that people want less of something than they did before;
For example, if gas prices go up suddenly then people might buy less gasoline which causes a decrease in the price per gallon. An adverse supply shock is when there are fewer goods to sell on the market than expected due to factors such as natural disasters or political conflicts with other countries.
An adverse supply shock will shift short-run aggregate supply, meaning that the economy is producing less and prices are higher. This makes it difficult for firms to produce goods at optimal levels because they have to pay more for their inputs which leads them to cut back on production in order to save money.
Now consumers can’t afford as much since there’s a smaller quantity of products offered on the market with an increased price per unit. There may be shortages or gluts due to shifts in demand rather than changes in real output When people aren’t able to buy what they need, this causes some economic agents (consumers) not being able to find something they value highly enough so that it motivates them to act.