Consider the market for a particular brand of watch, illustrated in the figure t
ID: 1189068 • Letter: C
Question
Consider the market for a particular brand of watch, illustrated in the figure to the right. Suppose there are network externalities in this market such that the quantity of the good demanded falls in response to the growth of purchases by other individuals (as indicated by the demand curve "Demand" in the figure). Suppose that the price is initially $8,000 where the quantity demanded is 120 watches per month. If the price of this brand of watch falls to $6,000, demand will increase to 140 watches. (Enter your response using an integer.) However, without negative network externalities, demand would have increased by units, which is the pure price effect, meaning the size of the snob effect is . (Enter your responses using integers.)Explanation / Answer
without negative externalty , demand would have been increased to 160 watches, meaning the size of snob effect is -20 units. because if there is no negative externalty, consumer will remain on D120 and in respose to price change ,160 watches will be demanded. as the purchasing beahviour of other consumer will not effect demand of consumer
but in case of presense of negative externality , due to fall in price and purchase of same watch by others will lead to demand increase to only 140 watches instead of 160.