A shock, in economic terms, is an unexpected event which affects economic conditions. Shocks can be on the demand or supply side. A supply shock is a shortage of production inputs or any factors that reduce the ability of a company, a sector or entire economies to function as normal, or which reduce an economy’s productive capacity. A typical example of a supply side shock is the 1970s energy shock which led to a sudden increase in the price of oil, with ensuing higher production costs and inflation.

Related terms