HISET Social Studies Practice

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What does 'Surplus' mean in economics?

  1. A budget where expenses exceed income

  2. A situation in which quantity demanded is greater than quantity supplied

  3. A situation in which quantity supplied is greater than quantity demanded

  4. A decrease in product prices

The correct answer is: A situation in which quantity supplied is greater than quantity demanded

In economics, 'surplus' refers specifically to a situation where the quantity supplied of a good or service exceeds the quantity demanded at a given price. This often occurs when the market price is set above the equilibrium price, leading producers to supply more of a product than consumers are willing to buy. When there is a surplus, it can lead to downward pressure on prices as sellers compete to attract buyers, often resulting in price reductions. Understanding this concept is fundamental for grasping market dynamics, where supply and demand interact to establish equilibrium prices. Other choices describe different concepts: having expenses exceed income refers to a budget deficit, while having demand exceed supply indicates a shortage. A decrease in product prices isn't a definition of surplus but rather a potential outcome of it.

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