What is a supply shock in the context of economics?

A supply shock refers to unexpected events that significantly impact the supply side of the economy. These sudden events can lead to drastic changes in the availability of goods and services, thereby affecting their prices and the overall market equilibrium. For instance, natural disasters, geopolitical tensions, or sudden changes in regulations can all contribute to supply shocks. The key characteristic of a supply shock is its unexpected nature, which distinguishes it from other changes in economic conditions that may be more predictable or gradual.

Other options describe different concepts in economics. Consistent changes in production capacity suggest a gradual adjustment rather than an abrupt shock. Market adjustments to government regulation imply that the supply changes are planned and anticipated rather than unexpected. Predictable fluctuations in commodity prices refer to seasonal or cyclical patterns that businesses and consumers expect, which again does not align with the notion of an unexpected supply disruption. Therefore, unexpected events impacting supply correctly captures the essence of a supply shock in economics.