Surplus

Published Oct 26, 2023

Definition of Surplus

Surplus refers to the amount by which quantity supplied exceeds quantity demanded at a given price. It represents an excess of supply in a market. Surplus can be measured in terms of both quantity and price.

Example

Let’s consider the market for concert tickets. Suppose a popular band announces a concert in a small venue with a limited number of seats available. The demand for tickets is high, and many fans are interested in attending the concert. However, due to the limited number of seats, the supply of tickets is lower than the demand.

As a result, there is a shortage of tickets, and some fans are unable to purchase tickets at the original price. This creates an opportunity for ticket resellers to enter the market and sell tickets at a higher price. These resellers are taking advantage of the shortage and charging a premium for tickets.

In this scenario, the surplus can be measured as the difference between the quantity supplied by the original ticket sellers and the quantity demanded by the fans at the original price. Additionally, the surplus can also be measured as the difference between the original price set by the ticket sellers and the higher prices charged by resellers.

Why Surplus Matters

Understanding surplus is essential for analyzing market dynamics and efficiency. In the case of a surplus, it indicates that suppliers are not able to sell all their goods or services. This can result in inefficiency and a loss of potential revenue for the suppliers. On the other hand, consumers may benefit from lower prices in order to clear the surplus. Surplus can also have implications for market competition, as it may lead to changes in pricing strategies and market behavior.