Which of the following is an example of a supply shock?

• A. A sudden increase in oil prices due to geopolitical conflict
• B. A government-imposed price ceiling on bread
• C. A decrease in the tax rate for consumers
• D. A rise in consumer demand for electric vehicles

Answer: (A)

Verified step by step guidance

1. Understand the concept of a supply shock: it is an unexpected event that suddenly changes the supply of a good or service, leading to a sudden change in its price or availability.
2. Analyze each option to determine if it affects supply or demand: a supply shock directly impacts the production or availability of goods, while demand changes affect consumers' willingness to buy.
3. Evaluate 'A sudden increase in oil prices due to geopolitical conflict': this directly affects the cost and availability of oil, which is an input in many production processes, thus impacting supply.
4. Consider 'A government-imposed price ceiling on bread': this is a policy intervention affecting price but not an unexpected change in supply itself.
5. Review 'A decrease in the tax rate for consumers' and 'A rise in consumer demand for electric vehicles': both affect demand rather than supply, so they are not supply shocks.