Why this is mistaken
“Surplus” names several different constructs. In this market-imbalance context, it is a physical or service quantity: quantity supplied minus quantity demanded at a specified price and period.
Repair the label before calculating. Excess supply uses output units. Profit uses revenue and expense recognition. Cash surplus needs a defined cash-flow or budget measure. Consumer and producer surplus use willingness-to-pay or cost areas, and total surplus combines those measures under a model.
If excess supply may affect inventory, build the inventory rollforward rather than assuming every unsold offer was produced, owned, undamaged, and on hand at period end.
Where to watch
When this mistake may appear
- A supply-and-demand problem uses the word surplus.
- Unsold units may remain in inventory.
Check your work
Your work may contain this mistake if:
- Reports a 200-unit excess supply as $200 of profit.
- Calls excess supply total surplus.
- Assumes every offered but unsold unit became ending inventory without a rollforward.