Final answer:
A surplus is the excess of quantity supplied over quantity demanded, or it refers to consumer surplus, which is the difference between the price consumers are willing to pay and what they actually pay. The correct formula is Surplus=Equilibrium Price−Price.
Step-by-step explanation:
Surplus in economics refers to the excess of quantity supplied over quantity demanded, or consumer surplus which is the difference between what consumers are willing to pay for a good or service versus what they actually pay. The correct definition of surplus in the context of a linear function and price analysis is (b) Surplus=Equilibrium Price−Price.
For instance, if the equilibrium price is $80, and the price is set at $70, then there would be a consumer surplus because consumers are getting the product for less than what they are willing to pay.
However, when the question presents a scenario such as if the price was $120, we need to know the demand and supply at that price to identify if a shortage or a surplus exists. If the quantity demanded at $120 is lower than the quantity supplied, a surplus exists because excess supply is present at that price level. The actual surplus is the difference between the quantity supplied and the quantity demanded.