Question

Why can there be only one competitive price for a good?

Why can there be only one competitive price for a good?

Homework Answers

Answer #1

In any market, price is the market clearing factor. If there are more than one different prices, then arbitrageurs will buy the good at lower price and sell the good at higher price to consumers who are willing to pay higher price for the same good. The arbitrage profit will increase the lower price since many people will start buying at lower price, and will decrease the higher price since many people will start selling at higher price. As a result, both prices will merge until quantity demanded equals quantity supplied at this common price.

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