Which term describes insufficient demand leading to a situation where prices tend to decrease?

The situation described in the question involves insufficient demand resulting in decreasing prices. This scenario is accurately represented by the term "surplus." A surplus occurs when the quantity of goods available for sale exceeds the demand for those goods. As sellers have more inventory than customers willing to buy at current prices, they are likely to reduce prices in an attempt to stimulate demand and clear excess stock.

While "deflation" also involves decreasing prices, it refers more broadly to a general decline in price levels across the economy over time, often associated with decreased overall demand or economic activity. "Stagflation" refers to a situation where inflation and stagnation occur simultaneously, which is not relevant to the concept of insufficient demand leading to falling prices. Lastly, "inflation" is characterized by rising prices, which is contrary to the premise of the question regarding insufficient demand leading to a decrease in prices. Therefore, the appropriate term for the scenario described is a surplus, as it directly captures the dynamics of excess supply causing price drops.