Step 1: Understanding the Concept:
The question asks to identify the type of economic externality associated with network-based products like smartphones. An externality is a cost or benefit that is imposed on a third party who did not agree to incur that cost or benefit.
- Consumption vs. Production: Does the externality arise from using the product or making it?
- Positive vs. Negative: Is the effect on the third party beneficial or harmful?
Step 3: Detailed Explanation:
The key here is the phrase "interconnected by a network". This refers to a network effect.
Therefore, the sale and use of smartphones create a positive consumption externality, also known as a network externality. A negative consumption externality would be something like secondhand smoke. A production externality would relate to the manufacturing process, such as pollution (negative) or technology spillover (positive).
Step 4: Final Answer:
The sale of products like smartphones interconnected by a network is a close example of positive consumption externalities.