Question

he situation where one person's demand for a good depends on the consumption of the good by others is called a

Select one:

A. production externality.

B. network externality.

C. network internality.

D. consumption externality.

Answer 1

Answer:B - Network Externality

Explanation: According to the American Economic Review by Michael Katz and Carl Shapiro in 1985 define network externality as the utility that a  given user derives from a good depends upon the number of other users who  are in the same network.

Understanding the above definition, goods exhibit network externality whenever the consumer enjoys benefits or suffers costs from changes in quantities demanded of a product. These benefits and costs result from such considerations as brand  familiarity, compatibility, product information, status and the prices of  related goods.