How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain
What will be an ideal response?
A network externality exists where the usefulness of the product increases with the number of people who use it. It can serve as an entry barrier because the popularity of the product attracts more and more consumers, thereby increasing the supplier's dominance in the market. However, this barrier is not insurmountable. If a rival enters the market with a superior product, then it is possible that customers will switch to the superior product.
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Refer to Figure 1A.1. Assume that the graph in this figure represents the demand and supply curves for women's clothing. An increase in the wage rate for seamstresses would be represented by a shift from
A) Demand 1 to Demand 2. B) Demand 2 to Demand 1. C) Supply 1 to Supply 2. D) Supply 2 to Supply 1.
During the Great Depression, the actual unemployment rate in the U.S. ________, and the natural rate apparently ________
A) increased; decreased B) increased; remain unchanged C) increased; increased as well D) decreased; increased E) decreased; remained unchanged