Economics Externalities Questions
A network externality refers to the positive or negative impact that an individual's consumption or production of a good or service has on the utility or value of that good or service for others. It occurs when the value of a product increases as more people use it, such as in the case of social media platforms or telephone networks. On the other hand, market failure refers to a situation where the allocation of goods and services by a free market is inefficient, resulting in a suboptimal outcome. Market failures can occur due to various reasons, such as externalities, imperfect information, monopolies, or public goods. While network externality is a specific type of externality, market failure is a broader concept that encompasses various situations where markets fail to allocate resources efficiently.