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Chapter 23: Q.16 (page 618)

Are there any “good” supply shocks? Explain.

Short Answer

Expert verified

Yes, increase in oil supply, development of new technology, increase in the supply of raw materials, favorable change in weather, etc. are good supply shocks.

Step by step solution

01

Concept Introduction   

Supply for a product refers to the different volumes of output that a seller is willing and able to sell at different price levels. Supply shocks can be defined as unprecedented changes that cause an increase or decrease in supply and hence in price.

02

Explanation

Some unprecedented events can be favorable to the economy and can contribute to economic growth. Such supply shocks are considered good shocks. For instance, an increase in the supply of oil would contribute to an increase in supply and lower price levels.

Other examples of good supply shocks are favorable changes in weather, development of new technology. increase in the supply of raw materials, etc.

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