In a pure exchange economy with two goods, if there is a competitive equilibrium with prices p 1  $12 and p 2  $27, then there must also be a competitive equilibrium with prices p 1  $24 and p 2  $54.

Question

In a pure exchange economy with two goods, if there is a competitive equilibrium with prices p 1     $12 and p 2     $27, then there must also be a competitive equilibrium with prices p 1     $24 and p 2     $54.

Zybrea Knight · Accepted Answer

Final Answer : True, Explanation :  This is true based on the existence of the law of one price in competitive markets. If one equilibrium exists with prices (p1,q1) and another equilibrium exists with prices (p2,q2), then there must exist a third equilibrium with prices in between (p1,p2) and corresponding quantities that clear the market. Therefore, the given statement is true as the prices in the second equilibrium are between the prices in the first equilibrium.

In a pure exchange economy with two goods, if there is a competitive equilibrium with prices p₁  $12 and p₂  $27, then there must also be a competitive equilibrium with prices p₁  $24 and p₂  $54.

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In a pure exchange economy with two goods, if there is a competitive equilibrium with prices p1  $12 and p2  $27, then there must also be a competitive equilibrium with prices p1  $24 and p2  $54.

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Learning Objectives

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Related questions

In a pure exchange economy with two goods, if there is a competitive equilibrium with prices p₁  $12 and p₂  $27, then there must also be a competitive equilibrium with prices p₁  $24 and p₂  $54.