Adverse Supply Side Shock  

An adverse supply side shock is an event that causes an unexpected increase in costs or disruption to production. This will cause the Long run aggregate supply curve to shift to the left, leading to higher inflation and lower output.

Diagram showing supply side shock

supplyside

Causes of Adverse Supply Side Shocks

  1. Rising Oil Prices e.g. cartel activity by OPEC
  2. Bad weather - Hurrican Katrina disrupted supply in US last year
  3. Declining productivity e.g. general strikes

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