What does the concept of 'Surplus' indicate in economic terms?

The concept of 'Surplus' in economic terms refers to a situation where supply exceeds demand. This occurs when the quantity of a product or service available in the market is greater than what consumers are willing to purchase at a given price. As a result, businesses may have excess inventory, leading them to lower prices or reduce production levels to balance the market.

Understanding surplus is essential as it highlights the dynamics of supply and demand in economics. When there is a surplus, it indicates that prices may not be at equilibrium, prompting sellers to adjust their strategies to align supply with consumer demand. This interaction helps maintain market stability and ensures that resources are allocated efficiently.