In a surplus, what happens to price?

• A. Price rising
• B. Price falling
• C. Quantity demanded decreasing
• D. No effect on price

Answer: (B)

When there is a surplus, supply exceeds demand at the current price. The market pressure is to move toward equilibrium by lowering the price. A lower price makes buyers want more (quantity demanded increases) and makes sellers want to produce less (quantity supplied decreases), so the excess supply shrinks until it clears at the new equilibrium price. That’s why the price falls.

Raising the price wouldn’t clear the surplus; it would keep or widen the excess. A change in price is needed to resolve the surplus, and no change would leave it unresolved.