# Understanding Surplus: Definition, Types, and Economic Impact

> **Definition**
>
> A surplus is the amount of an asset or resource that exceeds what is needed or used. It can refer to income, profits, capital, and goods, and it's often the result of a disconnect between supply and demand.

## What Is a Surplus?

A surplus is the amount of an asset or resource that exceeds the portion needed and used. A surplus can refer to income, profits, capital, or goods. A surplus occurs when products are left unsold on shelves or when earnings exceed expenses. Governments have a [budget surplus](https://www.investopedia.com/terms/b/budget-surplus.asp) when tax revenue exceeds the cost of all government programs. Economic surpluses can occur, including consumer and producer surpluses, both of which are bad for the other.

### Key Takeaways

*   A surplus occurs when the quantity of an asset or resource exceeds the demand or need for it.
*   Economic surpluses include consumer surplus and producer surplus, reflecting discrepancies between supply and demand.
*   Surpluses can create market disequilibrium, affecting the flow of goods and prices in the market.
*   A budget surplus means tax revenue exceeds government spending, often occurring during economic growth periods.
*   Surpluses and deficits both have implications for businesses and governments, influencing economic strategies.

![Surplus](https://www.investopedia.com/thmb/UnCItU3jJaaPCWvOIgGgpaiu1p0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Surplus-Final-resized-1279d674a9e541858e1c579b5e788306.jpg)

*— Investopedia / Matthew Collins*

## Understanding Consumer and Producer Surplus

There are two types of economic surplus: [consumer surplus](https://www.investopedia.com/terms/c/consumer_surplus.asp) and [producer surplus](https://www.investopedia.com/terms/p/producer_surplus.asp). They are [mutually exclusive](https://www.investopedia.com/terms/m/mutuallyexclusive.asp), meaning what's good for one is bad for the other.  

**Consumer Surplus:** A consumer surplus occurs when supply is high but demand is low. It occurs when the price of a product or service is lower than the highest price a consumer would willingly pay.  

![Consumer Surplus](https://www.investopedia.com/thmb/CMrXASx8VcfMBfsYVNor_To870w=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/ConsumerSurplusjpeg-5c38c4624cedfd0001d008a6.jpg)

*Consumer Surplus.*

**Producer Surplus:** A producer surplus happens when goods sell for more than the lowest price the producer would accept. If demand for a product spikes, the vendor offering the lowest price may run out of supply, resulting in price increases and a producer surplus.

![Producer Surplus](https://www.investopedia.com/thmb/3OI6VsaoleFN6v-U13Mirssuga8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/producer_surplus_final-680b3c00a8bb49edad28af9e5a5994ef.png)

*— Image by Julie Bang © Investopedia 2019*

> **Warning**
>
> A manufacturer who over-projects future demand for a product may create too many unsold units, contributing to quarterly or annual financial losses.

## How Surplus Causes Market Imbalances

A surplus causes a market [disequilibrium](https://www.investopedia.com/terms/d/disequilibrium.asp) in the supply and demand of a product. This imbalance means that the product cannot efficiently flow through the market.

Sometimes a government might set a [price floor](https://www.investopedia.com/terms/f/floor.asp), establishing a minimum price for a good. This often results in higher prices, which benefits the businesses. However, this imbalance often corrects itself without intervention.

When producers have a surplus of supply, they must sell the product at lower prices. Consequently, more consumers will purchase the cheaper product. This results in supply shortages if producers cannot meet consumer demand. A shortage in supply causes prices to increase, consequently causing consumers to turn away from the products because of high prices, and the cycle continues.

## Comparing Surpluses and Deficits

A [deficit](https://www.investopedia.com/terms/d/deficit.asp) is when there is less than what's needed or when expenses are greater than revenue. A deficit arises when expenses surpass [revenues](https://www.investopedia.com/terms/r/revenue.asp), imports top exports, or liabilities outstrip assets. Just as a surplus is not always a positive sign, deficits are not always unintentional or the sign of a government or business that's in financial trouble.

Businesses may deliberately run budget deficits to maximize future earnings opportunities—such as retaining employees during slow months to ensure an adequate workforce in busier times. For companies, running a deficit for too long can reduce a company's share value or even put it out of business.

Government budget surpluses typically occur during periods of economic growth. During recessions, when consumer demand declines, budget deficits follow. The last period in which the U.S. federal government had a budget surplus was 2001. A [trade deficit](https://www.investopedia.com/terms/t/trade_deficit.asp) is not inherently bad and may display a strong economy. Deficits carry risks if not handled properly or are coupled with debt.

## What Is a Total Economic Surplus?

A [total economic surplus](https://www.investopedia.com/ask/answers/041715/what-difference-between-consumer-surplus-and-economic-surplus.asp) is equal to the producer surplus plus the consumer surplus. It represents the net benefit to society from free markets in goods or services.

## What Is a Surplus Auction?

Surplus auctions are a way the federal government, state and local governments, and their agencies dispose of surplus property, from office furniture to heavy machinery, vehicles, and aircraft. Individuals may buy items that are no longer needed by government entities.

## What Does a High Consumer Surplus Mean?

A high consumer surplus means that goods are priced lower in the market than what consumers are willing to pay. This may result from a high level of competition.

## The Bottom Line

A surplus is an excess of an asset or resource, such as goods, income, profits, or government budgets. A surplus can impact market equilibrium, causing unsold goods, financial losses for producers, increased inventory storage costs, and other consequences.

There are two types of economic surplus: consumer surplus and producer surplus. Consumer surplus occurs when consumers pay less than they would normally be willing to pay; producer surplus occurs when prices are higher than they usually would charge. Each negatively affects the other.

If a surplus becomes a problem, a government might intervene. It could set price floors or ceilings, which in turn affect consumer spending and producer profitability. Because supply and demand are cyclical in nature, surpluses can occur naturally; however, if not properly managed, they can evolve into shortages, which also impact pricing and consumer behavior.  

> **Article Sources**
>
> 1.  FiscalData.Treasury.gov. "[What Is the National Deficit?](https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/)"
>     
> 2.  USA.gov. "[Government Auctions of Seized and Surplus Property](https://www.usa.gov/auctions-and-sales)."