301l5s - because others do Positive Network Externality Bandwagon Effect Quantity(thousands per month Price($ per unit D 20 20 When consumers

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Lecture 5 (supplement) Individual and Market Demand Professor S. Severinov Econ 301
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Network Externalities Up to this point we have assumed that people’s demands for a good are independent of one another For some goods, one person’s demand also depends on the demands of other people
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Network Externalities If this is the case, a network externality exists Network externalities can be positive or negative
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Network Externalities A positive network externality exists if the quantity of a good demanded by a consumer increases in response to an increase in purchases by other consumers Negative network externalities are just the opposite
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Network Externalities The Bandwagon Effect This is the desire to be in style, to have a good because almost everyone else has it, or to indulge in a fad This is the major objective of marketing and advertising campaigns (e.g. toys, clothing) Positive network externality in which a consumer wishes to possess a good in part
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Unformatted text preview: because others do Positive Network Externality: Bandwagon Effect Quantity (thousands per month) Price ($ per unit) D 20 20 When consumers believe more people have purchased the product, the demand curve shifts further to the the right. 40 D 40 60 D 60 80 D 80 100 D 100 Positive Network Externality: Bandwagon Effect Quantity (thousands per month) Price ($ per unit) D 20 20 The market demand curve is found by joining the points on the individual demand curves. It is relatively more elastic. 40 D 40 60 D 60 80 D 80 100 D 100 Demand Network Externality: Snob Effect Quantity (thousands per month) Price ($ per unit) 2 Demand D 2 $30,000 $15,000 14 Originally demand is D 2 , when consumers think 2,000 people have bought a good. 4 6 8 D 4 D 6 D 8 However, if consumers think 4,000 people have bought the good, demand shifts from D 2 to D 6 and its snob value has been reduced. Pure Price Effect...
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This note was uploaded on 01/28/2011 for the course ECON 301 taught by Professor Chapple during the Spring '08 term at The University of British Columbia.

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301l5s - because others do Positive Network Externality Bandwagon Effect Quantity(thousands per month Price($ per unit D 20 20 When consumers

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