In the context of inventories, a surplus describes products that remain sitting on store shelves, unpurchased. This imbalance means that the product cannot efficiently flow through the market.
A surplus can refer to a host of different items, including income, profits, capital, and goods.
A shortage in supply causes prices to go back up, consequently causing consumers to turn away from the products because of high prices, and the cycle continues. Updated Jul 13, What is a Surplus A surplus describes the amount of an asset or resource that exceeds the portion that's actively utilized.
Fortunately, the cycle of surplus and shortage has a way of balancing itself out. In another example, let's assume the price per barrel of oil drops, causing gas prices to dip below the price a driver is accustomed to shelling out at the pump.
Consequently, more consumers will purchase the product, now that it's cheaper. When producers have a surplus of supply, they must sell the product at lower prices.
Hypothetically speaking, if there were a set price for a certain popular doll, that everyone was unanimously expected and willing to pay, neither a surplus nor a shortage would occur.