Deck 14: Network Goods

Question 1

Which of these is NOT a type of network?

A) physical
B) mental
C) social
D) virtual

Answer 1

B

Question 2

A network connected by a transportation route is a _____ network.

A) physical
B) mental
C) social
D) virtual

Answer 2

A

Question 3

A network connected by groups of people using the same type of good is a _____ network.

A) physical
B) mental
C) social
D) virtual

Answer 3

D

Question 4

People who use Sony's PlayStation 4 gaming system are members of a _____ network.

A) physical
B) mental
C) social
D) virtual

Question 5

A network that combines elements of physical and virtual networks, and describes groups of people using the same product or service who are also connected more directly within the network is a _____ network.

A) physical
B) mental
C) social
D) virtual

Question 6

Facebook is a _____ network.

A) physical
B) mental
C) social
D) virtual

Question 7

The Fort Worth New Mom's Club is an example of a _____ network.

A) physical
B) mental
C) social
D) virtual

Question 8

Networks connected by fiber optics, transportation routes, or satellites are known as _____ networks.

A) physical
B) neural
C) virtual
D) social

Question 9

Networks connected by groups of people using the same type or brand of good are known as _____ networks.

A) physical
B) neural
C) virtual
D) social

Question 10

Users of Linux and other forms of open-source software can form a type of _____ network.

A) physical
B) neural
C) virtual
D) social

Question 11

A network good is one where the _____ number of other users of the good.

A) cost to the user rises if there is a large
B) benefit to the user falls if there is a large
C) cost to the user falls if there is a small
D) benefit to the user rises if there is a large

Question 12

A network good is one where the _____ number of other users of the good.

A) cost to the user rises if there is a large
B) benefit to the user falls if there is a large
C) cost to the user falls if there is a large
D) benefit to the user rises if there is a small

Question 13

Network goods

A) are a new category of goods.
B) depend on the existence of a network to exist.
C) are not goods at all, but services.
D) depend on the government to exist.

Question 14

Network goods differ from other types of markets studied in economics because the ____ is different.

A) demand curve
B) horizontal axis
C) supply curve
D) vertical axis

Question 15

Which of these is NOT a network good?

A) an ice cream sandwich
B) smartphones
C) mass transportation
D) an iPad

Question 16

If Sandy joins Match.com, then the value of membership in Match.com _____ for Joanie, who is already a member, and _____ for Robert, who is considering joining.

A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls

Question 17

A network externality is an external cost or benefit generated from the

A) network effect.
B) virtuous cycle.
C) consumption of a network good.
D) production of a network good.

Question 18

When a consumer joins a network, she generates a(n)

A) private benefit only.
B) private benefit and an external benefit equal to the vertical distance between the private demand curve and the social demand curve.
C) private benefit and an external benefit equal to the horizontal distance between the private demand curve and the social demand curve.
D) external benefit only.

Question 19

When a consumer joins a network, the private demand curve _____ and the social demand curve _____.

A) does not shift; shifts rightward
B) shifts rightward; does not shift
C) shifts rightward; shifts rightward
D) does not shift; shifts leftward

Question 20

When a consumer joins a network, the value of the network to existing users _____, and the value to potential users _____.

A) rises; rises
B) rises; does not change
C) does not change; rises
D) falls; falls

Question 21

The benefit added by the 50,000th user in a new network is _____ than the benefit added by 50,000,000th user, due to _____ returns to the network externality.

A) larger; increasing
B) larger; diminishing
C) smaller; increasing
D) smaller; diminishing

Question 22

Network externalities benefit all

A) users and all potential users.
B) users, except for the user generating the network effect, and all potential users.
C) users, except for the user generating the network effect.
D) potential users.

Question 23

Cameron joins a sailing club. This generates network externalities for all

A) members, including Cameron, and all potential users.
B) potential users.
C) members, except for Cameron.
D) members, except for Cameron, and all potential members.

Question 24

(Figure: Externalities and Network Effects) Based on the graph, we see that if a consumer joins the social network depicted

A) D_P shifts left and D_S shifts left.
B) D_P shifts left and D_S shifts right.
C) D_P shifts right and D_S shifts left.
D) D_P shifts right and D_S shifts right.

Question 25

(Figure: Externalities and Network Effects) Based on the graph, we see that if a consumer joins the social network depicted

A) D_P shifts right and the external benefit remains unchanged.
B) D_P remains unchanged and the external benefit increases.
C) D_P shifts right and the external benefit decreases.
D) D_P shifts right and the external benefit increases.

Question 26

(Figure: Externalities and Network Effects) Based on the graph, we see that if a consumer leaves the social network depicted

A) D_P shifts left and D_S shifts left.
B) D_P shifts left and D_S remains unchanged.
C) D_P remains unchanged and D_S shifts left.
D) D_P shifts right and D_S remains unchanged.

Question 27

(Figure: Externalities and Network Effects) Based on the graph, we see that if a consumer leaves the social network depicted

A) D_P shifts left and the external benefit remains unchanged.
B) D_P remains unchanged and the external benefit decreases.
C) D_P shifts left and the external benefit decreases.
D) D_P shifts left and the external benefit increases.

Question 28

In the market for a network good, the private

A) demand curve lies to the left of the social demand curve.
B) demand curve lies to the right of the social demand curve.
C) supply curve lies to the left of the social supply curve.
D) supply curve lies to the right of the social supply curve.

Question 29

(Figure: Understanding Network Good Markets) The graph depicts the market for a network good. Which letter represents the private demand curve?

A) E
B) F
C) G
D) H

Question 30

(Figure: Understanding Network Good Markets) The graph depicts the market for a network good. Which letter represents the social demand curve?

A) E
B) F
C) G
D) H

Question 31

(Figure: Understanding Network Good Markets) The graph depicts the market for a network good. What does G represent?

A) price
B) private demand
C) social demand
D) quantity

Question 32

(Figure: Understanding Network Good Markets) The graph depicts the market for a network good. What does H represent?

A) price
B) private demand
C) social demand
D) quantity

Question 33

A network is influencing consumer behavior in each of these situations EXCEPT with

A) Gretchen, who relies on customer reviews on Amazon.com in choosing a product.
B) Mark, who is more interested in joining a match-making website when the number of members in it rises.
C) Marta, who buys the clothing she likes regardless of what anyone else likes or is wearing.
D) Donald, who enjoys shopping online more after his computer service is upgraded to provide more bandwidth and speed.

Question 34

A cell phone service allows unlimited text messaging between its customers and any 10 persons of the customer's choice, but it charges a flat fee per 100 messages between its customers and others beyond the 10 initial persons. What type of network is this?

A) physical
B) virtual
C) social
D) auxiliary

Question 35

Which of these is NOT a network good?

A) subway service in a city
B) cell phone service
C) satellite television service
D) hospital services

Question 36

When there is a positive network externality to a network good, a larger network is associated with a(n)

A) increase in demand.
B) decrease in demand.
C) increase in supply.
D) decrease in supply.

Question 37

Which example is NOT part of a physical network?

A) a car being driven on a road
B) a house that gets its water from collecting rainwater
C) cable television service
D) airline service

Question 38

When there are network effects, a reduction in the number of users will

A) cause negative externalities.
B) cause the price to rise.
C) shift the demand curve to the left by a disproportionately large amount.
D) shift the supply curve to the left by a proportionate amount.

Question 39

As the size of a network rises, network effects

A) exhibit diminishing returns.
B) exhibit increasing returns.
C) lead to unchanging price elasticity of demand along a demand curve.
D) are associated with fixed rather than variable costs.

Question 40

Network demand curves

A) are downward sloping.
B) slope downward at small quantities but, once the market matures, become upward sloping.
C) slope upward at small quantities but, once the market matures, become downward sloping.
D) are upward sloping.

Question 41

A network demand curve slopes ____ at lower quantities and _____ at higher quantities.

A) downward; downward
B) downward; upward
C) upward; downward
D) upward; upward

Question 42

The model for a network demand curve assumes which of these?

A) The short-run supply curve is positively sloped.
B) A new entrant can expand in small increments.
C) There is a short-run demand curve corresponding to each short-run supply curve.
D) Only one firm may enter the industry.

Question 43

In the model for a network demand curve, an increase in supply will

A) have no effect on the demand curve.
B) cause the demand curve to shift rightward.
C) cause the demand curve to shift leftward.
D) cause the demand curve to pivot upward from the horizontal axis.

Question 44

Why is the short-run supply curve for a network good vertical?

A) It is limited to the capacity of the firm's fixed investment.
B) It is limited to the capacity of the firm's variable costs.
C) It is limited to the capacity of the firm's consumer demand.
D) It is limited to the capacity of the firm's pricing structure.

Question 45

What is the shape of the short-run supply curve for a network good?

A) vertical
B) horizontal
C) a 45-degree line
D) downward sloping

Question 46

(Figure: Goods with Fixed Capacities) The graph depicts a small network with fixed capacity. If capacity increases from S₀ to S₁

A) D remains unchanged, and P increases.
B) D rotates upward, and P increases.
C) D rotates downward, and P decreases.
D) D shifts parallel and to the right, and P increases.

Question 47

(Figure: Goods with Fixed Capacities) The graph depicts a small network with fixed capacity. If capacity decreases from S₁ to S₀

A) D remains unchanged, and P decreases.
B) D rotates upward, and P increases.
C) D rotates downward, and P decreases.
D) D shifts parallel and to the left, and P decreases.

Question 48

(Figure: Goods with Fixed Capacities) Based on the graph, we see that an increase in supply leads to a(n) _____ in price for a small network with fixed capacity and a(n) _____ in price for a non-network good.

A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease

Question 49

If one firm in a relatively new network goes out of business, we expect the demand curve for the network good to

A) pivot downward.
B) pivot upward.
C) shift downward.
D) remain unchanged.

Question 50

A consumer who has a very high willingness-to-pay for a new product or service and is among the first to purchase it is a(n) _____ user.

A) essential
B) core
C) elite
D) casual

Question 51

A consumer who purchases a good only after the good has matured in the market and is more sensitive to price is a(n) _____ user.

A) essential
B) core
C) elite
D) casual

Question 52

The network demand curve has an upward-sloping segment representing _____ and a downward-sloping segment representing _____ price sensitive.

A) casual users who are less price sensitive; core users who are more
B) casual users who are more quantity sensitive; core users who are more
C) core users who are more price sensitive; core users who are less
D) core users who are less price sensitive; casual users who are more

Question 53

Evan and his friends camp out at Best Buy every time a new version of the Call of Duty multiplayer video game is released so that they can be among the first to buy it. Evan and his friends are _____ users.

A) essential
B) core
C) fundamental
D) casual

Question 54

(Figure: Network Market Curves) Based on the graphs, which curve represents the demand curve for a network good?

A) A
B) B
C) C
D) D

Question 55

(Figure: Network Market Demand Curve) The graph depicts a network market demand curve. Along the quantity axis (x axis), casual users fall on the _____ portion and core users fall on the _____ portion.

A) left; center
B) left; right
C) center; right
D) right; left

Question 56

(Figure: Network Market Demand Curve) The graph depicts a network market demand curve. Along the quantity axis (x axis), customers who purchase the good after it matures, fall on the _____ portion and people who buy it before it matures fall on the _____ portion.

A) left; center
B) left; right
C) center; right
D) right; left

Question 57

Customers who purchase a network good after it matures are called _____ users.

A) core
B) marginal
C) casual
D) mature

Question 58

What economic process causes a portion of a network good's demand curve to slope downward?

A) a saturated market
B) lower production costs
C) the income effect
D) the substitution effect

Question 59

Which statement is NOT true?

A) A network demand curve is upward sloping for small quantities.
B) A network demand curve is downward sloping for large quantities.
C) A network demand curve reflects the role that casual users have in building the value of the network.
D) The production of network goods is typically carried out in large increments, due to high fixed capital costs.

Question 60

The production of network goods is typically carried out in _____ increments, due to _____ fixed capital costs.

A) small; high
B) small; low
C) large; high
D) large; low

Question 61

(Table: Online Dating Web Sites) From the table, which Web site seems to be attracting casual users?
$\begin{array}{|l|l|l|}\hline \text { Web Site } & \begin{array}{l}\text { Number of } \\\text { Members }\end{array} & \begin{array}{l}\text { Price per } \\\text { Month }\end{array} \\\hline \text { Mecting Place } & 2,000 & \$ 10 \\\hline \text { Find a Mate } & 20.000 & \$ 15 \\\hline \text { Looking for One } & 80,000 & \$ 20 \\\hline \text { Friend or More } & 150,000 & \$ 10 \\\hline\end{array}$

A) Meeting Place
B) Find a Mate
C) Looking for One
D) Friend or More

Question 62

(Table: Online Dating Web Sites) From the table, which Web site appears to be attracting core users but not casual users?
$\begin{array}{|l|l|l|}\hline \text { Web Site } & \begin{array}{l}\text { Number of } \\\text { Members }\end{array} & \begin{array}{l}\text { Price per } \\\text { Month }\end{array} \\\hline \text { Mecting Place } & 2,000 & \$ 10 \\\hline \text { Find a Mate } & 20.000 & \$ 15 \\\hline \text { Looking for One } & 80,000 & \$ 20 \\\hline \text { Friend or More } & 150,000 & \$ 10 \\\hline\end{array}$

A) Meeting Place and Find a Mate
B) Find a Mate and Friend or More
C) Looking for One and Friend or More
D) Meeting Place and Friend or More

Question 63

The demand curve for a network good indicates that as more people consume the good

A) the network effect is consistent in strength.
B) there are positive and negative externalities associated with consumption.
C) the returns to the network effect rise then diminish.
D) casual but curious consumers try the product first, while the core users come later.

Question 64

Huang is a core user and Jun is a casual user of the video game series Liz Lizardwoman. A new game is being issued in the series and will sell for $40 the first day it is available. Which statement would be consistent with Huang and Jun's user classifications?

A) Since Huang and Jun both like the series, both will buy it for $40 as soon as possible.
B) Jun will wait to see if Huang likes the game before buying it for $40.
C) Huang will look to see if the underlying assumptions in the game are consistent with his core values. Jun will see if people find it entertaining.
D) Huang will buy the game for $40 as soon as it comes out. Jun is more likely to wait until its price drops before he buys it.

Question 65

Which statement describes the normal pricing pattern for a network good?

A) Due to high fixed costs, the price starts high and then drops steadily as sales increase.
B) Price starts low and then steadily rises as sales increase.
C) Price starts low, rises, and then eventually falls as the market becomes saturated.
D) There is a negative relationship between price and quantity demanded at all price levels.

Question 66

When the market for a network good matures, the demand curve

A) has an upward slope.
B) is horizontal.
C) has a negative slope.
D) is vertical.

Question 67

As output increases

A) the network effect puts downward pressure on prices while the price effect puts upward pressure on prices.
B) the network effect puts upward pressure on prices while the price effect puts downward pressure on prices.
C) both the network effect and the price effect put upward pressure on prices.
D) both the network effect and the price effect put downward pressure on prices.

Question 68

The tipping point for a network good is also known as

A) the critical mass.
B) an optimal point.
C) a network externality.
D) a core user.

Question 69

The critical mass for a network good is also known as a(n)

A) tipping point.
B) optimal point.
C) network externality.
D) core user.

Question 70

The market equilibrium for a network good generally occurs _____ most network externalities are realized, on the _____ portion of the network demand curve.

A) after; downward-sloping
B) after; upward-sloping
C) before; downward-sloping
D) before; upward-sloping

Question 71

Network goods often have _____ costs.

A) high fixed
B) high variable
C) low fixed
D) low average

Question 72

Network goods often have _____ costs and _____ costs.

A) low fixed; low marginal
B) low fixed; high marginal
C) high variable; high marginal
D) low variable; low marginal

Question 73

Network goods often have _____ fixed costs and _____ marginal costs.

A) high; high
B) high; low
C) low; high
D) low; low

Question 74

Network goods often involve high _____ costs, leading to _____ of scale in the production process.

A) fixed; diseconomies
B) fixed; economies
C) variable; diseconomies
D) variable; economies

Question 75

(Figure: Market Equilibrium for a Network Good) When P = MC, where will market equilibrium occur?

A) It will occur at point d because at point b, network effects are strong enough to continue to induce more buyers to purchase the product.
B) It will occur at point b because MC = MR at that point, so the market will stabilize when it reaches point b.
C) It can occur at either point b or point d. There are multiple equilibria associated with network goods.
D) It will occur at point c because price and profits are the highest at c.

Question 76

(Figure: Market Equilibrium for a Network Good) Based on the graph, the tipping point is at point

A) a
B) b
C) c
D) d

Question 77

(Figure: Market Equilibrium for a Network Good) Based on the graph, product maturity occurs at point

A) a
B) b
C) c
D) d

Question 78

(Figure: Market Equilibrium for a Network Good) Based on the graph, the price effect equals the network effect at point

A) a
B) b
C) c
D) d

Question 79

(Figure: Market Equilibrium for a Network Good) Based on the graph, the network effect dominates the price effect in segment

A) ab.
B) bd.
C) ad.
D) de.

Question 80

(Figure: Market Equilibrium for a Network Good) Based on the graph, the price effect dominates the network effect in segment

A) ab.
B) bd.
C) ad.
D) de.