ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos

Econ: What is Positive Demand Shock? 0 Views


Share It!


Description:

What is Positive Demand Shock? Positive Demand Shock is an event where demand for a service or product suddenly explodes and the unexpected scarcity drives prices higher quickly. This can be the result of a sudden natural disaster, such as a flood or earthquake, or it can be the result of major television and social media coverage of a previously unseen item made popular by a celeb influencer.

Language:
English Language

Transcript

00:00

And finance Allah shmoop What is positive Demand Shock Well

00:07

we think of shocks is bad things you know electrocutions

00:11

earthquake serial killers in our basement Shocking So what is

00:14

a positive shock Think about Frankenstein's monster Yeah the monsters

00:18

All dead flash sewn together Then he's struck by lightning

00:22

Suddenly he's up and you know stumbling around He's alive

00:26

Good old Frankie Mo Well he gets to be alive

00:29

That's a positive for him at least but it's still

00:31

disruptive Now we've got a seven foot tall green guy

00:34

bumbling around knocking stuff over scaring villagers and possibly throwing

00:38

kids in tow Lakes A positive demand Shocking economics works

00:41

in a similar way The shock that is aggregate demand

00:45

suddenly spikes Usually it means something happened to put a

00:48

lot more money into a market than was there before

00:51

Well on the small scale than a man shot can

00:53

be positive Like if you're a company selling a product

00:56

that suddenly sees a spike in demand shock there Yeah

00:59

that's a good problem to have It's good for business

01:02

that people want your stuff Okay Positive demand shock on

01:05

the individual or corporate level How about that I think

01:09

your bottled water when a hurricane is coming or that

01:12

new brand of sunglasses after a Kardashian wears them in

01:15

an instagram post or earplugs when the shmoop singers come

01:18

to town these things boost demand suddenly enough to skew

01:22

the market And while there can be negative shocks as

01:24

well like this is where demand suddenly plummets You've got

01:28

a popular vitamin like people buy them by the caseload

01:31

Mina report comes out showing that taking the vitamin everyday

01:33

for a period of time will cause a person to

01:35

grow scales and become a swamp monster Hug Sales plummet

01:39

Negative demand shock There are two basic ways a market

01:42

can react to these shocks Remember your basic economic training

01:46

and everything is supply and demand Well prices are a

01:48

way to keep these forces in balance If demand suddenly

01:51

skyrockets Well at least one of two things are gonna

01:54

happen and maybe both Well one prices are going to

01:57

skyrocket or two supplies they're going quickly run out Those

02:01

are shocks on a corporate level relatively small scale Well

02:05

there were also shocked at the level of the whole

02:07

economy Shocks involving aggregate demand Well it's Christmas time people

02:12

the economy has been sluggish so Congress decides to do

02:16

something about it They issue a stimulus bill Everyone in

02:19

the U S gets a check for a thousand bucks

02:21

from the government Thank you very much A sudden spike

02:24

in aggregate demand Well now there are a couple hundred

02:27

billion more dollars to be spent on Christmas presents The

02:31

hot toy this year Yes the arty doll As of

02:34

October it's retail Bryce was twenty five bucks each Stores

02:37

have plenty of them in stock supply and demand are

02:40

in balance But now the government stimulus hits bam Aggregate

02:44

demand spikes Prices for everything rise suddenly lots more cash

02:48

floating around chasing the same goods and just because the

02:51

government sent everyone a check While that doesn't mean the

02:54

toy company can make anymore Artie's inventories run out Well

02:58

secondary market for the toys opened up including sky high

03:01

prices Now you have to pay two hundred fifty dollars

03:04

three hundred four hundred five hundred dollars on eBay to

03:06

get the doll by Christmas Eve That's a positive aggregate

03:10

demand shock like Frankenstein's monster causing havoc wherever it goes

03:14

But don't worry the monster doesn't last long The aggregate

03:17

demand shock positive or negative can cause short term havoc

03:20

But in the long term the market works itself out

03:22

In the case of a positive aggregate demand shock while

03:25

overtime companies find a way to produce more of the

03:27

item to meet the new level of demand right these

03:30

by another factory or something like that or work overtime

03:32

or prices will just have to stay higher so that

03:35

aggregates supply an aggregate demand stay balanced Either way the

03:39

market eventually reaches equilibrium again and conditions adjust And well

03:43

in the long term everything gets back to normal well

03:46

as normal as they can be with a seven foot 00:03:48.49 --> [endTime] tall monster on the loose

Up Next

GED Social Studies 1.1 Civics and Government
39794 Views

GED Social Studies 1.1 Civics and Government

Related Videos

Fake News
11938 Views

How do you tell fake news from real news?

Finance: What is Bankruptcy?
260 Views

What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...

Finance: What is a Dividend?
1777 Views

What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...

Finance: How Are Risks and Rewards Related?
589 Views

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...