Adverse supply shock is an event that causes the decreases in the supply of goods and services and therefore shifts the aggregate supply curve to the left. In the event of adverse supply shock, there is increased cost of production which in turn leads to increase in prices, reduced output and higher unemployment
Favorable supply shocks refers to an event of sudden change in the quantity supplied due to factor such as increase in the supply of raw materials, innovation of new and better methods of production, discover of new energy source and favorable weather conditions. Sudden change in all this factors causes shift of the supply curve to the right
In conclusion, sudden changes can either cause increase or decrease the quantity of goods and services provided. Additionally, when favorable supply shock occurs, the prices of goods and services in the market get lower. On the other hand when adverse supply shock occurs, the prices of goods and services in the market go lower than normal.
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