A good is subject to a network externality when:
A)the value of the good to an individual is less when a large number of other people also use the good.
B)the value of the good is determined only by marginal private benefits.
C)an increase in the number of other people using the good increases its value to an individual.
D)a good yields negative externalities.

Question

Quizplus · Accepted Answer

A network externality occurs when the value of a good for an individual depends on the number of other individuals using the same or compatible goods. As more people use the good, it becomes more valuable to the individual. Therefore, option C is the correct choice. Option A is incorrect because it describes a negative network externality. Option B is incorrect because it refers to only private benefits, while network externalities take into account the effects on others. Option D is incorrect because it refers to negative externalities, while network externalities can be positive or negative.

A Good Is Subject to a Network Externality When