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.

Question

Quizplus · Accepted Answer

This statement follows from the double auction market clearing condition, which requires that the total demand for each good equals its total supply. If the competitive equilibrium prices p₁ = $12 and p₂ = $27 clear the market, then the total demand for each good must be equal to the total supply. If we double the prices to $24 and $54, the quantity demanded for each good will decrease, and the quantity supplied will increase according to the law of supply and demand. However, the equilibrium condition still holds because the demand and supply for each good will adjust until they are equal at the new prices. Therefore, there must also be a competitive equilibrium with prices p₁ = $24 and p₂ = $54.

In a Pure Exchange Economy with Two Goods, If There