What Is a Supply Shock?

A supply shock is an unexpected event that suddenly changes the supply of a product or commodity, resulting in an unforeseen change in price. Supply shocks 澳洲幸运5官方开奖结果体彩网:can be negative, resulting in a decreased supply, or positive, yielding an increased supply. Assuming 澳洲幸运5官方开奖结果体彩网:aggregate demand is unchanged, a negative (or adverse) supply shock causes a product’s price to spike upward, while a positive supꦺply shock decreases the price.

Understanding Supply Shocks

A positive supply shock increases output, which causes prices to decrease due to a shift in the 澳洲幸运5官方开奖结果体彩网:supply curve to the right, while a negative supply shock decreꦦases production, which causes prices to rise.

Supply shocks can be created by any unexpected event that constrains output or disrupts the 澳洲幸运5官方开奖结果体彩网:supply chain, including natural disastersౠ and geopolitical developments, such as acts of war or terrorism.

A commodity that is widely perceived as vulnerable ꦛto negative supply shocks is crude oil because a majority of the world’s supply comes from the volatile Mi🅷ddle East region.

As of 2022, the Organization of the Petroleum Exporting Countries (OPEC) member nations, located in the Middle East, Africa, and South America, accounted for 79.5% of world oil reserves, with Middle East members alone accounting for 67.2% of that supply.

Oil supply has also been affected by 澳洲幸运5官方开奖结果体彩网:Russia’s invasion of Ukraine, sending gas prices in the U.S. skyrocketing in 2022.

Examples of Supply Shocks

The struggles of a single firm can cause a supply shock if the company is a large producer of high-demand products. This was the case when Glencore announced in October 2015 that it would cut its global output of zinc by 500,000 tons from its mines in Australia, Kazakhstan, and South America.

The decision came in response to a slump in zinc prices. This supply shock had its desired effect, boosting zinc prices to the benefit of Glencore and other zinc producers.

In 2023, olive oil experienced a supply shock. Climate change and weather issues caused a drastic drop in the olive harvest and supply of olive oil. As a result, prices soared to $8,500 per metric ton, an all-time high. This was up 125% from the 2020-2022 average.

The Bottom Line

Supply shocks impact the economy by changing the availability and prices of goods. They are often triggered by unforeseen events like natural disasters and geopolitical issues. Understanding and managing supply shocks is critical for businesses and governments in order to mitigate their negative impact on the economy and consumers.