Question

A ______________ (also called network externality or demand-side economies of scale) is the positive effect described in economics and business that an additional user of a good or service has on the value of that product to others. When it is present, the value of a product or service increases according to the number of others using it.

A) Externality
B) Network Externality
C) Economies of Scale
D) Supply-Side Effect

Answer 1

Network Externality is the correct term that describes the increase in value of a product or service as more people use it, which results in positive externalities for all users.

Step-by-step explanation:

The correct answer is B) Network Externality. This term refers to the phenomenon where the value of a product or service to one user increases as more people use it. As more individuals use a good or service that exhibits network externality, it results in positive externalities or beneficial spillovers for all users. In contrast to negative externalities, where a third party experiences a cost from an exchange they are not part of, positive externalities lead to underproduction in a market because the beneficial effects on third parties are not compensated. Natural monopolies often exhibit network externalities, as they can serve an entire market more efficiently due to substantial economies of scale.