Question

Which of the following is an example of a supply shock?

Selected Answer:

Answers:
A. A dramatic increase in energy prices increases production costs for firms in the economy.
B. A surge in consumer optimism prompts increased buying of goods and services.
C. A surprise tax rebate from the government gives people more money to spend.
D. Government increases spending on education.

Answer 1

A supply shock is exemplified by a dramatic increase in energy prices that leads to higher production costs for firms in the economy, resulting in a decrease in the overall supply of goods and services.

Step-by-step explanation:

A supply shock refers to a sudden and significant change in the availability or cost of inputs used in production, which can disrupt the normal functioning of the economy. Out of the options provided, an example of a supply shock would be A. A dramatic increase in energy prices increases production costs for firms in the economy. When energy prices increase, it will lead to higher costs for firms, making it more expensive to produce goods and services. This can result in a decrease in the overall supply of goods and services in the economy.