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Natural disaster

Definition

A natural disaster refers to a sudden and extreme event caused by environmental factors, such as hurricanes, earthquakes, or floods, that leads to significant damage and loss of life or property.

Analogy

Imagine you're playing a game of Jenga with your friends when suddenly a strong gust of wind blows away the tower. The wind represents the natural disaster that unexpectedly destroys everything in its path.

Related terms

Supply shock: A supply shock occurs when there is an unexpected and significant change in the availability of inputs or resources for production. For example, a natural disaster can cause a supply shock by destroying agricultural crops.

Shortage: A shortage happens when the quantity demanded exceeds the quantity supplied at the current price. In this case, if a natural disaster reduces the supply of agricultural crops, it may lead to a shortage in the market.

Price elasticity of demand: Price elasticity of demand measures how responsive consumers are to changes in price. If the demand for agricultural crops is highly elastic (responsive), then even small changes in price due to a natural disaster could result in large shifts in quantity demanded.