What effect do supply shocks typically have in the short run?

Supply shocks typically lead to sudden and unpredictable changes in the availability or cost of crucial inputs in the production process. These shocks can be caused by various factors, such as natural disasters, geopolitical events, or sudden changes in commodity prices. In the short run, a supply shock generally results in an alteration of output because businesses may need to adjust their production levels in response to these changes in input costs.

For example, if a natural disaster disrupts the supply of raw materials, firms may find it more expensive or difficult to produce goods, leading them to reduce output. Similarly, if a significant increase in oil prices occurs, transportation and production costs for many industries will rise, altering their output decisions. This response in production levels reflects how supply shocks can pivotally affect the economy in the short term through adjustments in resource availability and cost structures.