Asked by Jasmine Renteria on Jun 03, 2024
Verified
A good is subject to a network externality when:
A) the value of the good to an individual is less when a large number of other people also use the good.
B) the value of the good is determined only by marginal private benefits.
C) an increase in the number of other people using the good increases its value to an individual.
D) a good yields negative externalities.
Network Externality
A situation where the value or utility of a product or service to one user increases with the number of other users of the same or compatible products or services.
Marginal Private Benefits
The additional benefit received by consumers or producers from consuming or producing one more unit of a good or service.
Negative Externalities
Unintended adverse effects on third parties not involved in an economic transaction, like pollution.
- Explain the concept of network externalities and their effect on the results of market transactions.
Verified Answer
VG
Victoria GriecoJun 09, 2024
Final Answer :
C
Explanation :
A network externality occurs when the value of a good for an individual depends on the number of other individuals using the same or compatible goods. As more people use the good, it becomes more valuable to the individual. Therefore, option C is the correct choice. Option A is incorrect because it describes a negative network externality. Option B is incorrect because it refers to only private benefits, while network externalities take into account the effects on others. Option D is incorrect because it refers to negative externalities, while network externalities can be positive or negative.
Learning Objectives
- Explain the concept of network externalities and their effect on the results of market transactions.