Let us say that the price of watches is at $50. At the price of $50, 25 consumers demand watches and sellers supply 75 watches. This results in 50 leftover watches that are produced by sellers that are unwanted by consumers. Similarly to shortages, there is a self-correcting mechanism to resolve surpluses known as competition between sellers.
In order for a seller to ensure a sale of his products to consumers, the seller must compete for the business of consumers against his competitors. The way in which sellers do so is by giving consumers the best value through lower prices or higher qualities. In the event that sellers are producing similar products, producers must lower prices as much as possible. The lowering of prices reduces the number of goods, or watches, supplied and increases the quantity demanded by consumers. In this market, a $30 price will result in market equilibrium at which point the downward pressures of seller competition balances with the upward pressures of consumer competition.
It is important to take away from both shortages and surpluses that the problem is not with the market, as the market is the solution. As you can see, the market does have its own ways of correcting itself towards equilibrium. One must understand that it is not the consumers versus the wealth capitalists, but rather consumers competing amongst one another that lead to price increases. At the same time it is competition between sellers that results in a lower price. Remember that shortages and surpluses are often a problem with pricing. Also keep in mind the complexities of markets with all the buying and selling and levels of production and how that it is impossible for anyone to centrally plan a perfect equilibrium at all times. What we can be sure of is that despite both shortage and surplus, markets will correct and return to equilibrium.
Also, watch this learnliberty.org video to learn about marginal value, a very important economic principle. Learn how a bottle of water can be worth more than diamonds.
