The greater the network effects associated with given reductions in the initial price,: a) the greater the elasticity of the long-run demand for the network good

Economics Dec 13, 2020

The greater the network effects associated with given reductions in the initial price,:

a) the greater the elasticity of the long-run demand for the network good.

b) the lower the elasticity of the long-run demand for the network good.

c) the greater the inelasticity of the long-run demand for the network good.

d) none of the above.

Expert Solution

The correct answer is option a) the greater the elasticity of the long-run demand for the network good.

When there is a reduction in the initial price the elasticity of the long-run demand is that the network good would be greater. This gives the implication that the proportionate change in the demand for the network good would be more than the reduction in the initial price. So, the correct answer is option a) the greater the elasticity of the long-run demand for the network good.

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