Explain the role of shortages and surpluses in competitive markets?

In a competitive market, surpluses and shortages cause the price to change to reflect scarcity or plenty of goods and leads to more competition where there are shortages and less competition where there are surpluses. A shortage causes the price of goods or services to rise to meet the demand, and the increased profits encourage new vendors and producers as well as existing ones to expand production. A surplus will cause prices to fall and inefficient companies will go out of business or contract their business to seek profits elsewhere.