Surplus (Excess Supply)
What is Surplus (Excess Supply)?
A surplus occurs when quantity supplied exceeds quantity demanded at a given price.
A surplus, or excess supply, happens when producers are willing to sell more than consumers are willing to buy at the current price. This puts downward pressure on the price, as producers compete to sell their excess goods. The surplus will be eliminated as the price falls to the equilibrium level.
Surplus (Excess Supply): a worked example
A venue prices concert tickets at $60. At that price it will release 5,000 seats, but fans only want 3,200, so the surplus is 5,000 - 3,200 = 1,800 unsold seats. The venue cuts the price to $52; quantity demanded climbs to 3,800 while quantity supplied falls to 4,400, so the surplus shrinks to 4,400 - 3,800 = 600. At $45 both sides land on 4,100 and the surplus is zero. Every price cut narrowed the horizontal gap between the two curves until the gap closed at equilibrium.
The mistake students make with surplus (excess supply)
The word surplus does two different jobs in this course, and students merge them. This surplus is excess supply: a horizontal gap between quantity supplied and quantity demanded at one price, counted in units. Consumer surplus, producer surplus and total surplus are areas on the same graph, counted in dollars of benefit. Writing 'the surplus was 1,800' about welfare, or reasoning that a large total surplus means goods went unsold, mixes the two. Check which surplus the question means before drawing anything.
Surplus (Excess Supply) questions
Does a surplus mean the price is too high or too low?
A surplus means the price is sitting above equilibrium. Above the equilibrium price, sellers want to sell more than buyers want to buy, so goods pile up unsold and sellers start cutting the price to clear them. A shortage is the mirror image, with price below equilibrium. Quick check on a problem: if quantity supplied is the larger number, the given price is above equilibrium.
Why doesn't a surplus always disappear on its own?
A surplus persists whenever something blocks the price from falling, and the usual culprit is a binding price floor set above equilibrium. If a floor holds the price at $8 while equilibrium would be $6, sellers keep offering more than buyers will take and the excess supply never clears. The leftover stock then has to be bought up, stored or destroyed. Without a floor or a similar rule, competition among sellers erases a surplus.
This is the live Supply and Demand sandbox. Drag the curves, or open the full version.
Related terms
Common comparisons
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