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Chapter 26: Q. 10 - Problems (page 598)

Explain why network effects can cause the demand for a product either to expand or to contract relative to what it would be if there were no network effects.

Short Answer

Expert verified

(1) Other consumers will follow the increasing demand for that particular product. It's an increase in demand. (2) Demand for that particular product will decrease. This has the effect of increasing or decreasing the demand forthe product.

Step by step solution

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01

Given information

The given sentences are : (1)

Influenced by other people to buy goods and services.

02

Explanation (1)

Others influence consumers tobuy goods and services.Therefore, if the majority of people buy a particular product, other consumers will followsuit and increase the demand for that product.It's an increase in demand.

03

Given information 

The given sentences are : (2)

If the majority people deny buying a particular product

04

Explanation (2) 

If the majority of people refuse to buy a particular product, the rest will do the same, and the demand for that product will fall. As a result, the network effect either expands or contracts the demand for a product.

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