What happens when the supply of a good exceeds its demand?

When the supply of a good exceeds its demand, this situation is described as a surplus. A surplus occurs when the quantity of a good or service available in the market surpasses the quantity that consumers are willing and able to purchase at a given price.

This imbalance means that sellers may have unsold goods remaining, which can lead to a decrease in prices as they try to attract buyers. In such a scenario, the market operates to restore balance by adjusting prices downward, encouraging more consumers to purchase the product, which helps move toward an equilibrium state where supply equals demand.

Understanding the dynamics of supply and demand is crucial as it illustrates how market forces influence prices, availability, and overall economic efficiency. The creation of surplus is a fundamental concept in economics that serves as a signal to both producers and consumers about the need for price adjustments to reach market equilibrium.