Chapter 4R, Problem 16MCQ

To determine

To find a negative supply shock-causing factor.

Explanation of Solution

Disruptions in oil supply can cause an increase in the cost of production and a decrease in quantity supply, raising the price of goods. Hence, it is an example of a negative supply shock. Thus, option (e ) is correct.

A decrease in production cost will cause a positive supply shock and not a negative supply shock. Thus, option (a) is incorrect.

Advancements in information technology will cause productivity growth. It will be a positive supply shock as it decreases the cost of production. Thus, option (b) is incorrect.

The stock market is a sudden decrease in stock prices and is very volatile in nature hence it is not a supply-side factor. Thus option (c ) is incorrect.

The government running a budget deficit is not a supply-side factor, but a demand-side factor. Thus, option (d) is incorrect.

Economics Concept Introduction

A supply shock is an unanticipated occurrence that abruptly alters a product's or commodity's supply, causing an unanticipated shift in price. Supply shocks can be positive or negative, leading to an increase or drop in supply. A negative (or adverse) supply shock drives up the price of a product, whereas a positive supply shock drives it down, assuming that overall demand remains constant.