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 among consumers.
• B. The price of the product has decreased, leading to a movement along the demand curve.
• C. The product exhibits network externalities, where increased users make the product more valuable to others.
• D. The supply of the product has increased, causing a rightward shift in demand.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the difference between a movement along the demand curve and a shift of the demand curve. A movement along the demand curve happens when the price changes, while a shift occurs due to other factors affecting demand.
2. Step 2: Recognize that a rightward shift in demand means that at every price, consumers want to buy more of the product than before.
3. Step 3: Consider the concept of diminishing marginal utility, which means each additional unit consumed provides less additional satisfaction. This typically does not cause demand to increase as the user base grows.
4. Step 4: Analyze the idea of network externalities, where the value of a product increases as more people use it, making the product more desirable and shifting demand to the right.
5. Step 5: Conclude that the phenomenon described is best explained by network externalities, since the growing base of users increases the product's value and thus shifts the demand curve to the right.