<P> A supply shock is an event that suddenly increases or decreases the supply of a commodity or service, or of commodities and services in general . This sudden change affects the equilibrium price of the good or service or the economy's general price level . </P> <P> In the short run, an economy - wide negative supply shock will shift the aggregate supply curve leftward, decreasing the output and increasing the price level . For example, the imposition of an embargo on trade in oil would cause an adverse supply shock, since oil is a key factor of production for a wide variety of goods . A supply shock can cause stagflation due to a combination of rising prices and falling output . </P> <P> In the short run, an economy - wide positive supply shock will shift the aggregate supply curve rightward, increasing output and decreasing the price level . A positive supply shock could be an advance in technology (a technology shock) which makes production more efficient, thus increasing output . </P>

An adverse aggregate supply shock could result from