Final answer:
An adverse supply shock is an event that reduces aggregate supply, such as option (b), an outbreak of war in major oil producing nations, which disrupts oil supply and increases production costs. This leads to higher prices and reduced output, shifting SRAS and LRAS curves to the left.
Step-by-step explanation:
An adverse supply shock refers to a sudden event that causes a significant decrease in aggregate supply, potentially leading to higher prices and lower output. One classic example of an adverse supply shock is an outbreak of war in major oil-producing nations, as denoted by option (b).
This can disrupt the production and distribution of oil, which is a crucial input for various industries and economies, leading to a swift increase in oil prices. When the production costs for businesses rise, the quantity of goods supplied at a given price can fall, which shifts the Short-Run Aggregate Supply (SRAS) and Long-Run Aggregate Supply (LRAS) curves to the left.
Therefore, among the given options, (b) an outbreak of war in major oil producing nations is the correct example of an adverse supply shock. Option (a), a sudden increase in the price level, is more representative of an inflationary outcome, which could be caused by an adverse supply shock but is not an example of the shock itself. Option (c), an increase in the quantity of labor, would typically be considered a positive shock to aggregate supply, as it would likely increase the production capacity of the economy. Lastly, since one of the options provided is indeed an example of an adverse supply shock, option (d) is incorrect.