Final answer:
When there is a surplus in the market, there is downward pressure on prices as sellers try to reduce their excess inventory, resulting in prices falling towards the equilibrium level.
Step-by-step explanation:
When there is a surplus in the market, a. there is downward pressure on prices. This situation occurs because the quantity of goods or services supplied exceeds the quantity demanded at the current price level. As a result, sellers may find themselves with excess inventory that they cannot sell, leading to unsold surplus which can affect their ability to cover expenses and pay workers.
In order to stimulate sales and convert their goods into cash, sellers are motivated to reduce prices. Lowering the price will, in turn, increase the quantity demanded by consumers as the product becomes more attractive due to the reduced cost. This process continues until the market price adjusts toward the equilibrium where the quantity demanded equals the quantity supplied, thus eliminating the surplus.
An example of this can be seen in the market for gasoline. When there is a surplus of gasoline, it accumulates at various points in the supply chain. To avoid losses, gasoline sellers might start reducing their prices to encourage more consumption, hence aligning supply with the heightened demand at the new, lower price.