Consider an exchange economy with X = R¹ and strictly positive total endow- ment of each good. (a) Suppose a good is such that all consumers strictly prefer to have more of that good. Explain why the price of the good must be strictly positive in any competitve equilibrium. (b) Suppose a good is such that all consumers strictly prefer to have less of that good. Explain why the price of the good must be strictly negative in any competitive equilibrium.

Consider an exchange economy with X = R¹ and strictly positive total endow- ment of each good. (a) Suppose a good is such that all consumers strictly prefer to have more of that good. Explain why the price of the good must be strictly positive in any competitve equilibrium. (b) Suppose a good is such that all consumers strictly prefer to have less of that good. Explain why the price of the good must be strictly negative in any competitive equilibrium.

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Chapter1: Making Economics Decisions

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Equilibrium Price and Quantity

Equilibrium refers to a state of balance that comes about because there is equality in all forces.

Question

2. Consider an exchange economy with X = R2 and strictly positive total endow-
ment of each good.
(a) Suppose a good is such that all consumers strictly prefer to have more of
that good. Explain why the price of the good must be strictly positive in
any competitve equilibrium.
(b) Suppose a good is such that all consumers strictly prefer to have less of
that good. Explain why the price of the good must be strictly negative in
any competitive equilibrium.

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