Walras' Law

• Walras' Law = the price that clears the market for good 1 will also clear the market for good 2
• Identity of Walras' Law = a statement that is true for any positive prices, equilibrium or not
• One market in equilibrium = other markets must also be in equilibrium
• Excess supply in one market = implies excess demand in the other market
• Possibility 1 = the endowment is already the equilibrium in which no trade will occur
• Possibility 2 = one person is a net seller for one good & net buyer for the other, and vice versa for the second person
• For Pareto optima = MRS of consumer 1 = MRS of consumer 2