What occurs when demand is less than supply in a market?

When demand is less than supply in a market, it results in a surplus. A surplus occurs when the quantity of a good or service produced exceeds the quantity that consumers are willing to purchase at the current price. This situation typically leads to downward pressure on prices, as sellers may reduce their prices to stimulate demand and sell off excess inventory.

In contrast, market equilibrium refers to the state where the quantity of a good demanded by consumers equals the quantity supplied by producers, leading to stable prices. A shortage, on the other hand, arises when demand exceeds supply, prompting an increase in prices due to the competition among buyers for the limited goods available. The equilibrium price is the price point at which supply and demand balance each other. Thus, understanding the dynamics of surplus is essential for analyzing market behavior when supply outstrips demand.