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Unformatted text preview: Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD Month YYYY]. 1 1 Irish Potato Famine 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen September 21, 2007 Lecture 8 Irish Potato Famine, Network Externalities and Uncertainty Outline 1. Chap 4: Irish Potato Famine 2. Chap 4: Network Externalities 3. Chap 5: Uncertainty 1 Irish Potato Famine Typical Giffen good. In Year 1845-1849, people consumed more potatoes when the price increased. (Figure 1) 2 Network Externalities Network externality. One persons demand depends on the demands of other people. [Bandwagon effect (Figure 2)] Positive network externality. When more people buy, you will buy more. Example. iPod: buy to be in style. Market demand more elastic than real demand curve. Seller sets lower price....
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