What Is a Network Externality

question 193

Multiple Choice

What is a network externality?

• A)It refers to having a network of suppliers and buyers for a good or service.
• B)It refers to lobbying to form a public enterprise.
• C)It refers to a situation in which a product's usefulness increases with the number of people using it.
• D)It refers to a product that requires connection to a network for it to be useful.

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Definitions:

Moral Hazard

The risk that a party insulated from risk may behave differently than if they were fully exposed to the risk.

Underpricing

Underpricing refers to setting the initial sales price of a new product or service below market value, often used to attract customers quickly.

Standby Basis

A term referring to a state of readiness without being actively engaged in a task, often used in reference to equipment or services available on-demand.

Equity Issue

The process by which companies issue new shares of stock to raise capital from public investors.