How does the economy self correct from a negative supply shock?

A negative supply shock, such as a natural disaster or sudden increase in production costs, typically leads to higher prices and reduced output. In response, the economy self-corrects through market mechanisms: higher prices incentivize producers to increase supply or seek alternative resources, while reduced demand prompts consumers to adjust their consumption patterns. Over time, these adjustments can lead to a restoration of equilibrium as new suppliers enter the market or existing ones innovate to overcome the supply constraints. Additionally, monetary and fiscal policies may be employed to support recovery and stabilize the economy further.