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:

Operant Behavior

A concept in behavioral psychology referring to behavior that is controlled or influenced by its consequences, including rewards and punishments.

Primary Reinforcer

A stimulus that satisfies basic survival instincts such as food, water, and warmth, and doesn't require learning to become effective.

Conditioned Reinforcer

a stimulus that gains its reinforcing power through association with a primary reinforcer, used to increase the likelihood of a specific response in operant conditioning.

Reinforcing Power

The ability of a stimulus to increase the likelihood of the repetition of a behavior when it is presented following that behavior.