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, all else being equal, as the price of a good or service decreases, the quantity demanded increases. When there is excess demand (quantity demanded > quantity supplied at a given price), a decrease in price (as per the law of demand) would lead to an increase in quantity demanded. But if supply is limited (as in excess - demand situations where supply can't immediately meet the increased demand), this connection is highlighted.

• Option 2: The law of demand is about price - quantity demanded relationship (price down - quantity demanded up), not price up - quantity demanded up. So this option is wrong.
• Option 3: The law of demand is about demand (quantity demanded) and price, not about supply. So this option is wrong.
• Option 4: Similar to option 3, the law of demand is not about supply. So this option is wrong.

Answer:

The first option.