Use the following statements to answer this question:
I. A network externality is a situation in which each individual's demand depends on the purchases of other buyers.
II. Network externalities are mainly positive effects resulting from the actions of others, while ordinary externalities are mainly negative effects resulting from the actions of others.

Question

Quizplus · Accepted Answer

Statement I is true because network externalities occur when the value of a product increases as more people use it. Statement II is false because network externalities can be both positive (e.g., more users make a product more valuable) and negative (e.g., congestion effects). Ordinary externalities can also be positive or negative.

Use the Following Statements to Answer This Question