Download The Technological Industry

The Technological
Running head: THE TECHNOLOGICAL INDUSTRY
The Technological Industry
Student’s Name
School’s Name
April 5, 2008
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The Technological Industry
Technology plays a major role in our lives. Technology is one of the major determinants
of supply as a technological advancement would lead to lower costs and hence increase supply.
Not only that, but technology can also affect the Production Possibility Curve and advancement
in technology could help an economy to reach a point that was unattainable before. Technology
thus is an extremely powerful factor that can affect the economy, now we have to examine how
the economy affects the success of the technological industry.
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The Technological Industry
Technology plays a major role in our lives. Technology is one of the major
determinants of supply as a technological advancement would lead to lower costs and
hence increase supply. Not only that, but technology can also affect the Production
Possibility Curve and advancement in technology could help an economy to reach a
point that was unattainable before. Technology thus is an extremely powerful factor that
can affect the economy, now we have to examine how the economy affects the success
of the technological industry.
Supply and Demand
First, I examined how current or past events in the industry has caused shifts
with the price elasticity of supply and demand, in this I examined how Microsoft sales
and sales forecasts have been dropping as a result of the drop in PC Sales. Here we
must remember that software and PC are complements, hence a decrease in the
demand for one good, would result in a decrease for the demand of its complement. A
decrease in demand in general would cause prices to fall. If prices fall, then the supply
will decrease because suppliers such as Microsoft would not cut down prices. Although
the articles do not specifically tackle the issues of the elasticity of supply and demand,
we can easily deduct that such a drop in demand probably did not cause shifts in the
elasticity. This is because the second article suggests that Microsoft would not lower its
prices.
The demand for software is probably inelastic since there are no close
substitutes, taking Microsoft Office software as an example, if someone uses MS word,
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then another person would not be able to view and edit the document unless he has MS
Word as well. It is true that there are many other software that does the same job as
MS Word such as Corell’s WordPerfect, but still it cannot be considered a close
substitute.
I believe that software is becoming a necessity, most consumers use software in
their day to day lives, nobody is using typing machines any more, or to be more
accurate, the demand for typewriters has fallen tremendously over the past 15 years.
Although I could not find articles that discuss the price elasticity of demand for software,
I am confident that the price elasticity of demand for software is less than -1.0.
Externalities
Secondly I would examine externalities in the technological industry, their causes and
effects.
An Externality is defined by Mankiw as “The Uncompensated impact of one person’s
actions on the well-being of a bystander”1
One of the most noticeable negative externalities of technology is piracy, whether it is
software piracy, copyrights infringements, and so forth. An article by Candace
Lombradi discusses software piracy in great detail. Lombradi, in her article has
conducted a study that showed that “software piracy resulted in a loss of $34 Billion
worldwide in 2005, a $1.6 Billion increase over 2004…”2
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Obviously, such a negative externality is directly affecting a third party; software
manufacturers such as Microsoft are suffering a great loss as a direct result of the
pirated software transactions.
Another indirect externality that is implied in an article by Alfred Hermida is
participating in organized crime, “They have also pushed the idea that consumers are
supporting organized crime when they buy a game or DVD from someone in the
street.”3
In my personal opinion, downloading games, songs, or movies from the internet
gets consumer used to stealing because, as the article states, there is no difference
between downloading a free game and stealing a DVD or a CD from a store.
From those articles, we can confidently say that technology – especially software is a
Private Good; a good that is rival and excludable, and is supplied by private firms in the
marketplace. This is because, in essence, only the consumer who pays for a software
license is allowed to use it. Pirated software reclassifies the good as a Public Good that
is both nonrival and nonexcludable since consumers who use such software share the
benefits without sharing the costs.
Trade-off Between Efficiency and Equality:
Third, I examined the trade-off between efficiency and equality. Just like in any
other industry, the trade-off between Efficiency, and Equality would always be present.
The Technological Industry might appear to be both efficient and fair at the same time
simply because most people who work in this industry have computer knowledge and
those are usually offered higher salaries than other industries. Surprisingly, this is not
true. If we are discussing the Technological Industry in the United States, we might not
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realize the wage inequality, but we are discussing the industry in general not only in the
United States. The first article I located indirectly discusses this fact when the writer
says “Like many other manufacturers, the world's biggest computer companies face a
tough business environment. To cut costs, they outsource production to low-wage
countries.4
Reading through the article the writer states “Electronics workers in developing
countries are rarely employed directly by the big brand name companies. In
Guadalajara, Mexico, workers are hired through agencies that supply workers for
contract manufacturers. The agencies often ask personal questions in interviews
designed to screen out pregnant women and anyone likely to organize workers for
better working conditions, according to CAFOD. Once recruited, workers live in fear of
losing their jobs. Many are employed on consecutive short-term contracts lasting three
months, making it easy for the agencies to fire them at will.” 5 From that we can see that
wage inequality DOES exist even in an industry that requires higher education. Wage
Inequality can thus be easily proven if a survey is conducted about interview questions.
In the second article I located, the writer states that “Most companies don't want
older workers, and the managers make sure these people are not hired," he says. He
says companies want young, cheap workers fresh out of college who are willing to work
12-hour days for half the salary expected by more experienced workers.” 6 The above is
a proof that there is a wage inequality in the technological industry because according
to the article, two people – one is a fresh graduate and the other is an older person
would be doing the same job with the fresh graduate being paid only half the salary of
the older person.
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Such wage inequality could be easily seen when comparing salaries of two
employees doing the same job where one of them is a fresh graduate and the other is
an older person.
Effects of Monetary and Fiscal Policies:
Finally, I examined the effects that fiscal and monetary policies had over the
technological industries. “President Bush and the Republican-led Congress have
increased spending substantially since Bush took office in 2001. In those five years,
spending has risen faster than at any time since the Vietnam War.”7
The article elaborates by listing the eight ways this has happened and among
these comes “Protecting the homeland”, and although the article does not explicitly
tackle the effects of this increase in government spending on the technological industry,
the effects are quite obvious. Protecting the homeland means that more money is spent
on the development of new software and hardware that help meeting the new security
measures.
The second article confirms this by saying “Companies that specialize in
software, hardware and services for the security industry could see stronger growth this
year than counterparts in other technology fields, said speakers at this week's RSA
Conference 2003 here.”8 As far as monetary policy, the third report states that “The
Committee raised its target for the federal funds rate at its January and March meetings
as available information pointed to accumulating pressures on inflation and solid
economic growth.”9
From the above, we can see that there is an expansionary fiscal policy through
increased government spending; such a policy would mean that the unemployment rate
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in the technological industry would decrease as more people are needed to create and
use the new security software and hardware.
This expansionary fiscal policy would increase the demand for new security
systems (both in hardware and software), hence create an increase in the growth of the
industry. An increase in demand is usually coupled with an increase in price levels,
which would have led to inflation, but that is when a concretionary monetary policy
came into place. At the beginning of 2007, the Fed has increased the Federal Fund
Rate in an attempt to curb inflation, and according the report, the Fed’s attempts were
successful.
Conclusion
From all of the above, it is easy to see that the economy greatly affects the
success or failure of an industry. Economic policies can actually “make or break” an
industry. In the case of Microsoft, we saw how a decrease in the demand of one good
negatively affected the demand for software. To the extent that the demand for
software is elastic, software prices dropped.
We also can see that economic decisions do not just affect the parties directly
involved in the transaction; almost every decision that is made affects people who are
“outsiders” to the transaction. The effects could be positive or negative, and the same
decision can have both positive and negative externalities at the same time as we have
seen throughout the study. Actually, even a negative externality such as software policy
generated some positive effects, for example even if you are using a pirated software,
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you still can do your work more efficiently, and in some cases your use of a pirated
software might lead you to purchase genuine software once you see that you are
benefiting from the use of this particular software. We also examined the elasticity of
supply and saw that the elasticity of demand and those of supply have an inverse
relationship; because the demand for software is inelastic, a small decrease in the
demand for software would not cause a noticeable decrease in price, but can cause a
big decrease in supply.
The example of software has also showed that we cannot clearly divide goods
into public and private goods, this is because that although the use of software is
supposed to be excludable because when an individual purchases a copy of a program,
other family members and work associates can use that program whether they are
using it on the same machine or by making a pirated copy. We saw that the “Free-rider
problem” remains a problem that economists cannot solve.
On the subject of wage inequality, the research shows that there is a trade-off
between equality and efficiency which is why economists view the world through the
lens of scarcity. Since human and property resources are limited (Scarce), it follows
that the goods and services we produce must also be scarce. Scarcity limits our
options and necessitates that we make choices.
Finally, we saw how monetary and fiscal policies can help in steering the
economy and that the “Laissez-Faire” attitude cannot really work because for example,
if the government and the Fed do not engage in the expansionary and concretionary
policies, periods of recession and inflation can last for a long time. Individuals are not
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simply greedy; it is just that scarcity makes them want so many things for a limited
amount of resources.
Economic decisions that are meant to have a positive effect might have a
negative effect; taxes for example are meant to generate funds for the government so
that they can build new highways, keep offering welfare payments, and so forth, but
those taxes reduces the disposable income of taxpayers and forces them to make
choices. In conclusion, it is scarcity not anything else that is the driving force.
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References
http://news.com.com/Study+Software+piracy+costs+34+billion/2100-1014_3-6075629.html
http://www.asyousow.org/human_rights/electronics.shtml
http://www.zazona.com/ShameH1B/Library/BrainSavers/Discrimination_Rampant.htm
http://www.usatoday.com/news/washington/2006-04-02-federal-spending-inside_x.htm
http://news.com.com/2100-1014-996798.html
http://www.federalreserve.gov/boarddocs/hh/2007/february/0207mpr_sec1.htm
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