Surplus occurs when quantity supplied exceeds quantity demanded at a given price; what is the effect on price?

• A. Upward pressure on price
• B. No pressure on price
• C. Downward pressure on price
• D. Upward and downward pressure simultaneously

Answer: (C)

When quantity supplied exceeds quantity demanded at the current price, there’s an excess supply or surplus. That surplus puts downward pressure on the price because sellers want to clear extra stock, so they lower prices to attract more buyers and reduce production. As the price falls, quantity demanded rises and quantity supplied falls until the market reaches equilibrium. So the effect on price is downward pressure. Upward pressure would occur with a shortage, not a surplus; no pressure would imply prices aren’t moving despite the imbalance, which isn’t the typical adjustment; and having both pressures at once doesn’t fit the standard surplus scenario.