Why in general do shocks force people to make changes Give a

Why in general do shocks force people to make changes? Give at least two examples from your own experience.

Solution

Shocks force people to change their preferences or their behaviour. Under the natural choices the utility of the products lies on the rational choices that the consumer makes based on their preference of their risk and the knowledge of the potential outcome of any of the choices that they make. Shocks are any external factor such as any demographic, environmental or technological changes. The outcomes of the shocks are either negative or positive based on the experience the individual.

If there is a burglary in the neighbourhood the people living in the area will demand more of the advanced security systems. The burglary acts as a shock to the people and also influences their demand of advanced security systems.

Similarly, If there is a new technology in a manufacturing industry that can reduce the time spent on manufacturing the product to half the time it took earlier, it would mean that every manufacturer will try and acquire the technology to become more efficient and thus the innovation in technology acts as a positive shock.