Question

Explain the shape of the network good demand curve and illustrate with a diagram

Answer 1

A network good is that good ,the demand for which depends upon how many people are willing to buy that good not just price.

The basis of this concept is that ,when more people consume a product, that product becomes more valuable to others, they also start buying it.

* Here price is considered constant for the time being

* How many people want to purchase the product depends upon how many people actually purchase it.

along x- axis, it is expected quantity Qx, along y axis ,it is actual quantity Qa

The curve starts from x axis, depicting that when expected quantity is low, actual quantity is also low.

As it is upward sloping curve ,it shows that as expected quantity increases,, that is ,more people want to join the network,Qa also increases..

After it, we observe that,quantity demanded increasing at diminishing rate.

figure 2 ,shows the real demand curve for a network good.

It shows both strong network effects and weak network effects.

A demand curve for a good with network externality shows marginal willingness to pay for each potential quantity sold.

Holding the price to be constant, the upward slope of demand curve shows the strong network effect.

Similarly, on the eight side ,the downward slope of demand curve shows the diminishing network effect.