For years, your neighbor insisted she had no desire to own a computer. Recently, however, she purchased one and says she did so because all her relatives have computers and she wants to exchange e-mail with them. Your neighbor's behavior is an example of
A) a switching cost.
B) the impact of negative market feedback.
C) limited-pricing behavior.
D) a network effect.

Question

Quizplus · Accepted Answer

Your neighbor's behavior is an example of a network effect, as she purchased a computer to be able to exchange emails with her relatives who already have computers. The value of the computer to her is increased due to the presence and use of computers by her relatives, which is a classic example of network externalities.

For Years, Your Neighbor Insisted She Had No Desire to Own