Surplus (in demand-supply context) occurs when quantity supplied exceeds quantity demanded at a given price, typically when price is above equilibrium. Characteristics: Unsold inventory accumulates, downward pressure on price, wastage possible (perishables). Market response: Sellers reduce prices to clear inventory, pushing toward equilibrium. Dead-weight loss: Economic inefficiency from unsold goods. Producer surplus: Difference between price received and minimum acceptable price. Consumer surplus: Difference between maximum willing price and actual price paid. Graphical representation: Area above price line and below supply curve (producer surplus); Area below demand curve and above price line (consumer surplus). Total surplus: Sum of consumer and producer surplus, maximized at equilibrium. Policy implications: Price controls creating surplus (price floors), tariffs creating surplus (reducing imports). Real example: Agricultural surplus when harvest is good but prices fall; government intervention may buy surplus to support farmers. ICAI focus: Distinction between shortage and surplus, effects on prices, economic welfare. Exam tip: Surplus leads to price decrease; if question shows surplus with rising prices, external intervention is implied.