Question

Part 1 (1 point) In which two of these examples are network externalities important?

Answer 1

1. In an economy, network externality refers to the benefit or lose faced by an individual due to other people who are purchasing the same product. From the given options, college alumni and Netflix are the examples of negative externality because increased number of alumni in the college improves it's reputation in the economy that, in turn, helps a college to raise funds for college activities. Similarly, Netflix is an online platform whose demand increases day by day due to increased number of subscribers increases its demand.

The demand for fresh breads will depend upon consumers taste and preferences and their income level.

Hence, the correct options are: A. college alumni, and C. Netflix.

2. From the given options, network externality exhibit with Snapchat because increased users of Snapchat will increase its recognition in the market, which, in turn, increases its demand. Demand for bicycle, clothes, and pizza depends upon their price level and preferences.

Hence, the correct option is: B. Snapchat.

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