True or false: in an Edgeworth Box, if there is excess supply for X then there...

True or false: in an Edgeworth Box, if there is excess supply for X then there must be excess demand for Y. Explain.

Expert Solution

True.

To explain this we'll take into consideration the concept of relative price. At the relative price of good x is more than that of good y, it would be more profitable for the producers to sell it and less profitable for the consumers to buy it, hence the total supply of good x will be more than the demand for good x. And the total supply of good y at that price will be less as compared to its demand in the market. As it would be more profitable for the consumers to buy it and less profitable for producers to sell it when compared to good x. Resulting in the excess supply for X and excess demand for Y.

Rahul Sunny answered 2 years ago

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