Demand Shocks

Though often considered as solely an issue on the supply side, shocks can affect demand as well. Demand shocks are also commonly perceived to come about because of changes in consumer preferences, but they can also be linked to changes in other factors of demand like the price of complements and substitutes.

Negative Demand Shocks

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· These cause less quantity of goods to be consumed, and those consumers still in the market pay a lower price for the good. An example of this would be if a medical journal reported that a widely used prescription drug appreciably increases your chances of cancer. Then there would be a sharp shift in demand with fewer goods being consumed at a lower price.

Positive Demand Shock

· Conversely, this type of shock can cause more goods to be consumed at a higher price. Consider the combined effects of two simultaneous events upon the demand of two complements, fish and tartar sauce: a new nutritional study conclusively touts the many health benefits of eating fish, and there are commercial fishing efficiency advances that make fish inexpensive. More people will want to eat fish, leading them to buy more tartar sauce even though it’s now at a higher price.

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