In economics, a surplus generally refers to a situation where the quantity of a good or resource supplied exceeds the quantity demanded at a given price. This means there is more of the good available than consumers want to buy, resulting in unsold products or unused resources
. There are two main types of economic surplus:
- Consumer Surplus: This occurs when consumers pay a price lower than the maximum amount they are willing to pay. It represents the benefit or gain consumers receive because they are able to purchase a product for less than their valuation of it. Graphically, consumer surplus is the area above the market price and below the demand curve
- Producer Surplus: This happens when producers sell a product at a price higher than the minimum price they are willing to accept. It reflects the benefit producers gain from selling at a market price above their cost. On a supply and demand graph, producer surplus is the area below the market price and above the supply curve
The sum of consumer and producer surplus is called total economic surplus or social surplus , which measures the overall welfare or efficiency in a market. A surplus can indicate inefficiency if goods are not allocated according to consumer preferences, but it can also be beneficial if goods are storable or if it reflects positive economic conditions
. Surpluses can also occur in other contexts, such as a budget surplus where government revenues exceed expenditures, or inventory surpluses where unsold goods accumulate
. In summary, surplus in economics captures the idea of excess supply relative to demand and includes the concepts of consumer and producer gains from market transactions. It is a key measure of market well-being and efficiency.
