A two-way network that links users and in which the per-unit value of the service increases as the size of the network increases is a:
A) positive externality known as an indirect network externality.
B) negative externality known as an indirect network externality.
C) positive externality known as a direct network externality.
D) negative externality known as a direct network externality.

Question

Quizplus · Accepted Answer

A direct network externality is a situation where the value of a product or service increases as more people use it. In this case, a two-way network linking users creates a direct network externality because the more people that use the network, the more valuable the service becomes. As such, the correct answer is C, a positive externality known as a direct network externality.

A Two-Way Network That Links Users and in Which the Per-Unit