Demand shock

In economics, a demand shock is a sudden event that increases or decreases demand for goods or services temporarily.

A positive demand shock increases demand and a negative demand shock decreases demand. Prices of goods and services are affected in both cases. When demand for a good or service increases, its price typically increases because of a shift in the demand curve to the right. When demand decreases, its price typically decreases because of a shift in the demand curve to the left. Demand shocks can originate from changes in things such as tax rates, money supply, and government spending. For example, taxpayers owe the government less money after a tax cut, thereby freeing up more money available for personal spending. When the taxpayers use the money to purchase goods and services, their prices go up.