While solving for a competitive equilibrium in a general equilibrium model with N commodities a price normalization is required because of which of the reasons below:
A. The homogeneity of degree zero of demands of consumers and supplies of producers in prices
B. The Walras law
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General equilibrium and exchange economies has come up 69 times in 7 exams since 2004.
This question is on Walras' law, numeraire and relative prices, part of General equilibrium and exchange economies in Microeconomics.
Why one market clears automatically when the others do, and why only relative prices matter.
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Question from the JNU SIS 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.