The correct explanation for the connection between the law of demand and excess demand is as follows:
- The law of demand states that as the price of a good or service decreases, the quantity demanded for that good or service increases, ceteris paribus (all other factors remaining constant).
- Excess demand occurs when the quantity demanded exceeds the quantity supplied at a given price. This situation typically leads to shortages in the market.
- Therefore, the correct statement connecting the law of demand and excess demand would be: "The law states that decreases in price lead to greater quantity demanded and limited supply, which occurs during excess demand."
This explanation aligns with the fundamental economic principle that as prices decrease (according to the law of demand), consumers tend to demand more of a product or service, potentially leading to situations of excess demand where supply may be insufficient to meet the increased demand at that lower price level.
