Tony has a cell phone, and his service provider is Verizon. When he calls his wife, Meleah, another Verizon customer, he does not have to pay for those minutes. The more Verizon customers there are in the market, the more benefit Tony receives. This is:
A) a network externality.
B) the Coase theorem.
C) a Pigouvian subsidy.
D) a technology spillover.

Question

Quizplus · Accepted Answer

A network externality occurs when the value of a product or service increases as more people use it. In this case, Tony benefits more as there are more Verizon customers, because he can call them without incurring additional costs.

Tony Has a Cell Phone, and His Service Provider Is