If consumer demand for a product shifts to the right as the base of users grows, which of the following best explains this phenomenon?

• A. The product is experiencing diminishing marginal utility for each additional user.
• B. The product exhibits network externalities, where increased usage by others raises individual demand.
• C. The product is a Giffen good, causing demand to rise as price increases.
• D. The supply curve is shifting to the left due to higher production costs.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of demand shifting to the right, which means an increase in demand at every price level.
2. Step 2: Recognize that diminishing marginal utility implies that each additional unit consumed provides less additional satisfaction, which typically would not cause demand to increase as more users join.
3. Step 3: Recall the definition of network externalities: when the value or utility a consumer derives from a product increases as more people use the product, leading to higher individual demand as the user base grows.
4. Step 4: Identify that a Giffen good is a special case where demand increases as price increases, which is unrelated to the number of users or network effects.
5. Step 5: Note that a leftward shift in the supply curve due to higher production costs affects supply, not demand, and thus does not explain the demand shift caused by a growing user base.