Suppose That There Are Two Goods, X and Y, That

question 145

Multiple Choice

Suppose that there are two goods, X and Y, that are competing for dominance in a market with network externalities. Furthermore, suppose that the market has chosen good X even though it is inferior to good Y and that the net benefits of switching from X to Y are $20 while the costs of switching are $30. If the market stays with good X, then __________________ has occurred. If the costs of switching were to fall to $15 and the market still stays with good X then ___________________________.

• A)no market failure; market failure has occurred.
• B)market failure; no market failure has occurred.
• C)no market failure; there will still be no market failure.
• D)market failure; there will still be market failure.

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Definitions:

Poor Insight

A lack of awareness or understanding about one's own condition, symptoms, or the impact of one's actions on others, often seen in various mental health disorders.

Framing

The way information is presented to us which can influence our decisions and judgments.

Functional Fixedness

A cognitive bias that limits a person to using an object only in the way it is traditionally used.

Restructuring

Thinking about a problem in a new way in order to solve it.