What happens in the market when there is a surplus?

When there is a surplus in the market, it means that the quantity supplied exceeds the quantity demanded at the current price level. In this situation, sellers are left with excess inventory, indicating that consumers are not purchasing as much as the sellers had expected.

To address the surplus, sellers will typically decrease prices to stimulate demand and encourage consumers to buy more of the product. This price decrease makes the goods more attractive to buyers and helps to align the quantity supplied with the quantity demanded, ultimately moving the market towards equilibrium.

In contrast, an increase in prices generally occurs in the opposite scenario, where demand exceeds supply. Prices stabilizing would imply no change in market conditions, which does not account for the dynamics caused by a surplus. An increase in supply doesn't directly explain the immediate consequence of a surplus; rather, it suggests the causes behind it.