The long-run adjustment to a negative supply shock often results in a combination of factors including:
1. Technological innovation: Businesses may invest in new technologies to increase efficiency and reduce costs.
2. Resource reallocation: Firms may shift resources towards alternative inputs or production methods.
3. Price adjustments: Prices may increase as firms pass on higher costs to consumers.
4. Structural changes: Industries may undergo structural changes, with some firms exiting the market and others entering.
5. Labor market adjustments: There might be changes in wages and employment levels as labor markets adapt to new conditions.
6. Government intervention: Policies such as subsidies, tax breaks, or regulations may be implemented to mitigate the shock’s effects.
Overall, the economy tends to adapt and find new equilibrium levels, although this process can take time and involve significant adjustments.
