Chapter 75, Problem 7MCQ

To determine

The externality of example when someone uses social media cite and its value increases for that person’s friends who are already using this cite.

Answer to Problem 7MCQ

From the available options, the correct option is network externality curve.

Explanation of Solution

Technology spillover is an example of social benefit but it cannot apply in this case and negative externality involves the cost of third party but in this case, friends do not bear any cost if another person joins the social media platform. Moreover, this case is not based on the benefit which encourages behavior that positively effects others’ therefore it is not an example of Pigouvian subsidy.

But it is an example of network externality because the use of social media platform by one person is highly affected by the use of this site by friends, therefore, the correct option is d (network externality).

Economics Concept Introduction

Introduction: When the demand for a good or service depends on the demand of others who can or buy that good or service then it is called network externality where the buying patterns are strongly influenced by others’ purchasing.