supply-side shock
Sometimes the jolt to the economy comes not from how much people want to buy, but from how costly or hard it suddenly becomes to produce. A war spikes the price of oil; a drought wrecks the harvest; a pandemic snarls supply chains; or, on the happy side, a new technology suddenly makes everything cheaper to make. Any sudden, economy-wide change in the cost or capacity of production is a supply-side shock. The desire to buy may be unchanged; what shifts is the cost and ease of supplying.
In the AD-AS model, a supply shock shifts the aggregate supply curve, especially short-run aggregate supply. An adverse (negative) supply shock — say energy costs quadruple — pushes SRAS left: production gets pricier, so firms supply less at any given price, and the result is the nasty combination of higher prices and lower output. That painful pairing has a name: stagflation, where stagnation and inflation arrive together. A favourable (positive) supply shock — a bumper harvest, a productivity leap — pushes SRAS right, giving lower prices and higher output at once.
Supply shocks are the harder problem for policymakers, and that is their whole significance. With a demand shock, output and inflation move together, so boosting demand fixes both. With a supply shock they move in opposite directions, creating a cruel trade-off: stimulate to support output and you worsen inflation; tighten to fight inflation and you deepen the slump. The 1970s oil shocks are the textbook case and the reason economists take supply-side disruptions so seriously. The honest caveat, again, is that real-world shocks often mix demand and supply, which is what makes them so hard to respond to.
When OPEC's 1973 oil embargo sent energy prices soaring, producing almost anything got more expensive at once. Output fell and inflation jumped together — stagflation — leaving policymakers with no easy move, since fighting one problem worsened the other.
Supply shock signature: output and inflation move in opposite directions — the cruel stagflation trade-off.
A supply shock forces a genuine trade-off that demand-management cannot escape: you cannot use a single demand lever to fix both falling output and rising inflation at once. That is why supply shocks are uniquely hard.