A network externality occurs when
A) there is production cost savings from being networked with suppliers.
B) there is production cost savings from being networked with buyers.
C) the usefulness of a good is affected by how many others use the good.
D) the usefulness of a good is affected by celebrities who use the good.

Question

Quizplus · Accepted Answer

Network externality refers to the effect that the number of users of a good or service has on the value of that good or service to other users. In other words, the more people use a particular product or service, the more valuable it becomes to others. This occurs in situations such as social media platforms, where the number of users affects the usefulness of the platform to its users. Option A and B are not correct because production cost savings from networking with suppliers or buyers is not related to network externality. Option D is not correct because the usefulness of a good is not affected by celebrities who use the good in the context of network externality.

A Network Externality Occurs When