Question

Which explains the connection between the law of demand and excess demand?

1. The law states that price decreases lead to greater demand and limited supply, which occur during excess demand.
2. The law states that price increases lead to greater demand and limited supply, which occur during excess demand.
3. The law states that price decreases lead to greater supply and equilibrium, which occurs during excess demand.
4. The law states that price increases lead to greater supply and equilibrium, which occurs during excess demand.

Answer 1

Correct answer choice is :

A) The law states that price decreases lead to greater demand and limited supply, which occur during excess demand.

Step-by-step explanation:

The law of demand states that conditional on all else being equal, as the price of a good increase, quantity demanded decreases; conversely, as the price of a good decrease, quantity demanded increases. The excess stock makes the price to fall and quantity demanded to rise. A reduction in supply will make an increase in the balance price and a decrease in the equilibrium amount of a good. Excess demand makes the price to rise and quantity demanded to decrease.