Shock (economics)

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In

economic variables.

The response of economic variables, such as

Types of shocks

A technology shock is the kind resulting from a technological development that affects productivity.

If the shock is due to constrained supply, it is termed a supply shock and usually results in price increases for a particular product. Supply shocks can be produced when accidents or disasters occur. The 2008 Western Australian gas crisis resulting from a pipeline explosion at Varanus Island is one example.

A

by businesses.

A preference shock is a change in

over consumption or leisure.

An inflationary shock happens when prices of commodities increase suddenly (e.g., after a decrease of government subsidies) while not all salaries are adjusted immediately throughout society (this results in a temporary loss of purchasing power for many consumers); or that production costs begin to exceed corporate revenues (e.g. following energy price hikes).

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amounts.

A news shock is a change in current expectations of future technological progress, which could be induced by new information about potential technological developments.

In the context of microeconomics, shocks are also studied at the household level, such as health, income, and consumption shocks. Negative individual and household economic shocks can result from job loss, for example, while positive shocks can come from winning the

the relationship between household income shocks and household levels of consumption is studied to understand a household's ability to insure itself (testing the full-insurance hypothesis).

Political impact

Economic shocks impact political preference. The experience of negative shocks such as job loss causes individuals to favor

See also

• 1973 oil crisis
• Dynamic stochastic general equilibrium
• Shock therapy
• Social risk management
• Technology shock
• Vector autoregression

References