Define an economic shock.

An economic shock is a sudden and largely unexpected event that significantly shifts aggregate demand or aggregate supply.

Distinguish between a demand-side and a supply-side shock.

A demand-side shock is a sudden change in spending, such as a collapse in confidence or a recession in a major export market, whereas a supply-side shock is a sudden change in costs or capacity, such as an energy price spike or a broken supply chain.

Give two examples of supply-side shocks.

A sharp rise in world oil and gas prices, and a natural disaster or conflict that halts production of a key component or raw material.

What does an adverse supply shock do to the price level and real output?

It shifts short-run aggregate supply to the left, so the price level rises and real output falls.

Why is a firm with a long international supply chain more exposed to shocks?

There are more separate points at which the chain can break, lead times are long so a disruption cannot be corrected quickly, and stock held between stages is rarely enough to absorb it.

Edexcel A-Level Economics B 9EB0

Scarcity, Choice and Potential Conflicts

Topic overview Scarcity and the economic problem Choice, trade-offs and opportunity cost Profit maximisation, sales maximisation and satisficing Survival, market share and other business objectives Stakeholders and their objectives Stakeholder conflicts and corporate social responsibility

Enterprise, Business and the Economy

Topic overview The entrepreneur and creative destruction Adding value Entrepreneurial motives Factors of production Division of labour and specialisation The wider economic environment and the firm

Introducing the Market

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The Role of Credit in the Economy

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Market Failure and Government Intervention

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Revenue, Costs, Profits and Cash

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Business Growth and Competitive Advantage

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Firms, Consumers and Elasticities of Demand

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Life in a Global Economy

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The Economic Cycle

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Introduction to Macroeconomic Policy

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Globalisation

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Economic Factors in Business Expansion

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Impact of Globalisation on Global Companies

Topic overview Globalisation and glocalisation Ethnocentric, polycentric and geocentric approaches to global markets Price and non-price competition in global markets Branding and differentiation in global markets Cultural and language barriers in global markets Adapting marketing strategy for niche and mass markets

Impact of Globalisation on Local and National Economies

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Global Labour Markets

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Inequality and Re-Distribution

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Competition and Market Power

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Market Power and Market Failure

Topic overview Cartels, collusion and restrictive practices Monopsony, natural monopoly and power in the labour market The implications of market failure for firms, consumers and government Promoting competition: anti-competitive practices, mergers and privatisation Regulating natural monopolies and protecting consumers and employees The Competition and Markets Authority and EU competition policy The benefits and costs of regulation

Market Failure Across the Economy

Topic overview Merit and demerit goods Factor immobility and information failure Externalities and social costs and benefits Environmental externalities and environmental change Policies to correct market failure

Macroeconomic Policies and Impact on Firms and Individuals

Topic overview Aggregate demand and its components Aggregate supply, full capacity output and the output gap The multiplier effect Shifts in AD and AS: inflation, unemployment and growth Fiscal policy: government spending and taxation Monetary policy: the Bank of England, interest rates and quantitative easing Demand-side policies on the AD/AS diagram: investment, jobs and prices Time lags, policy conflicts and the limits of demand-side policy Market-based supply-side policies Interventionist supply-side policies Supply-side policies on the AD/AS diagram: strengths and weaknesses Comparing macroeconomic policies and judging their success

Risk and the Financial Sector

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Risk and the Financial Sector

Economic shocks and their impact on firms

3 things to know
Papers 1 and 3

Overview

Economic shocks, demand-side and supply-side shocks and examples, the effect of an adverse supply shock on prices and output, long international supply chains, symmetric and asymmetric shocks, building resilience, just in time against resilience, energy price rises, uneven effects on firms, recessions in trading partners, permanent loss of capacity, and opportunities from shocks.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

Distinguish between a symmetric and an asymmetric shock.

Key term

How does a sharp rise in energy prices affect an energy-intensive manufacturer?

Key term

Why can a severe shock permanently reduce an economy's productive capacity?

Questions from this subtopic

Each one with the model answer underneath.

1
Define an economic shock.
Model answer
An economic shock is a sudden and largely unexpected event that significantly shifts aggregate demand or aggregate supply.
2
Distinguish between a demand-side and a supply-side shock.
Model answer
A demand-side shock is a sudden change in spending, such as a collapse in confidence or a recession in a major export market, whereas a supply-side shock is a sudden change in costs or capacity, such as an energy price spike or a broken supply chain.
3
Give two examples of supply-side shocks.
Model answer
A sharp rise in world oil and gas prices, and a natural disaster or conflict that halts production of a key component or raw material.
4
What does an adverse supply shock do to the price level and real output?
Model answer
It shifts short-run aggregate supply to the left, so the price level rises and real output falls.
5
Why is a firm with a long international supply chain more exposed to shocks?
Model answer
There are more separate points at which the chain can break, lead times are long so a disruption cannot be corrected quickly, and stock held between stages is rarely enough to absorb it.
6
Distinguish between a symmetric and an asymmetric shock.
Model answer
A symmetric shock affects all the countries or regions of a group in a similar way, whereas an asymmetric shock affects some and not others, so a single common policy response suits only part of the group.

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ABorrowing becomes dearer and saving more rewarding.

BMortgage holders have less disposable income left.

CSpending on credit-financed items falls.

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