Positive Economic Analysis



Positive Economic Analysis

Introduction

Positive Economics is that branch of Economics, which is concerned with the justification and reasoning of economic occurrences. Its main area of focus is facts and figures, cause and effect association between economic factors. In addition, it also involves the advancement and analysis of economic theories. It describes the analysis of economic behavior and produces a typical economic theoretic statement such as; Increase in interest rate will encourage people to save more money by depositing it in banks or increase in money supply will also increase inflation in the economy (Wong. S. 1987).

Discussion

The Case of US Vs. Microsoft

Microsoft achieved dominancy in software industry in the early 90s with the invention of windows. Bill Gates forecasted the growth and revolution of Internet and planned strategically to grow his business by using same technological innovations and ruled the market. Microsoft used to invest $100 million per year in Internet Research and Development. Company expanded its Internet division with enormous growth from six people to more than thousand in only four years. Later in 1997, it created web browser named Internet Explorer. In addition, Microsoft incorporated Internet explorer in Windows and did not change any thing on browsing as opposed to Netscape and won the completion in the market (Mossoff. A., 2012). This act of Microsoft represents the economic principle of People Respond to Incentives (Mankiw. G. et al. 2011).

It also started issuing license via Earthlink and IEAP to the users for downloading and customization purposes. Its service was used by around 95% of the Internet subscriber in USA. In addition, it also offered a combination of technological package with business opportunities to its partners like IBM, Compaq, and Intel to create a value added trade. Furthermore, it left behind Netscape by developing and providing all Internet access to America Online's browser AOL. This trade treaty by Microsoft represents the economic principle of Trade can make every one better off, as the innovation of Microsoft facilitated and caused increase in profits of other associated trade parties as well by offering them its services (Mankiw. G. et al. 2011).

Federal Government's Economic point of view and decision

Federal Government of USA considered the dominance and determination of Microsoft as fear and alarms for similar companies operating in the market. It killed the market competition by putting an end to the operation of its rivals by offering them incentives that they could never refuse. The process of licensing the software was considered as a threat and forceful action to maintain long-term success and monopoly in the industry. Refusal of Microsoft to support market competition led to a punishment.

Federal Government indicated that monopoly drives out the potential competitors from the market. And Low prices charged by Microsoft are equitant to the profit maximization price charges in the short term to capture the market share. And gradually Microsoft would charge higher prices in future by capturing market and wiping out competition. Even if it charges high prices or low prices it would remain monopolize ...