Walras' Law states that general equilibrium determines the prices of all goods and inputs
A)with absolute certainty.
B)relative to the price of another good or input.
C)only after the effects of an exogenous shock to a market are determined.
D)relative to efficient prices.

Question

Quizplus · Accepted Answer

Walras' Law states that in a general equilibrium, the total value of excess demand for all goods and inputs must be zero. This means that the prices of all goods and inputs are determined relative to the price of another good or input. There is no absolute certainty in general equilibrium, as prices are subject to change based on various factors. The efficiency of prices is not a direct factor in Walras' Law, although general equilibrium is thought to lead to efficient prices over time. The effects of an exogenous shock would need to be incorporated into the general equilibrium model in order to determine the new equilibrium prices. Walras' Law states that in a general equilibrium, the prices of all goods and inputs are determined relative to the price of another good or input. This means that the prices of goods and inputs are interdependent and cannot be determined in isolation.

Walras' Law States That General Equilibrium Determines the Prices of All