Which economic principle explains why higher prices can lead to a surplus?

The principle that explains why higher prices can lead to a surplus is rooted in the Law of Supply. This law states that, all else being equal, an increase in the price of a good or service will lead producers to supply more of it to the market. As prices rise, the motivation for producers to increase their output also rises, resulting in a higher quantity supplied.

When the quantity supplied exceeds the quantity demanded at higher prices, a surplus occurs. This is because consumers may be unwilling or unable to purchase as much of the good at the elevated price, leading to excess goods in the market. Thus, this principle helps to illustrate how price fluctuations can impact market equilibrium, leading to surpluses when supply outstrips demand.