Question

which explains the connection between the law of demand and excess demand? the law states that decreases in price leads to greater quantity demanded and limited supply, which occurs during excess demand. the law states that increases in price increases leads to greater quantity demanded and limited supply, which occurs during excess demand. the law states that decreases in price leads to greater supply and equilibrium, which occurs during excess demand. the law states that increases in price leads to greater supply and equilibrium, which occurs during excess demand

Explanation:

The law of demand states that, ceteris paribus (all else being equal), as the price of a good or service decreases, the quantity demanded increases. In a situation of excess demand (where quantity demanded > quantity supplied at the current price), a decrease in price (as per the law of demand logic in terms of how consumers react) would lead to an increase in quantity demanded. But in reality, in excess - demand situations, typically prices tend to rise in a free - market to reach equilibrium. However, looking at the relationship described in the options:

• Option 2 is wrong because the law of demand says price increases lead to quantity demanded decreases (not increases).
• Option 3 is wrong because a decrease in price (by the law of demand) affects quantity demanded (increases it) not supply directly in the way described here.
• Option 4 is wrong because the law of demand is about the relationship between price and quantity demanded, not price and supply in the context of the law's basic statement.

Answer:

The first option.