2.1.3 R&D and innovation Flashcards
What is R&D?
Investment in research with the intention of improving goods and services, introducing new ones, or improving methods of production.
How can R&D increase market power?
It gives products a USP by differentiating them from rival products, which could increase brand loyalty and revenue.
How can technological change result in lowered costs?
Improvements in efficiency and productivity, which could lower costs.
Quality and quantity of goods produced might improve.
What is an example of technological innovation?
Mobile phones have become cheaper to produce and so price has fallen. Their quality has improved significantly.
What is an example of technological change destroying existing markets?
The development of DVDs, then blu-rays, and now downloadable films have essentially destroyed the market for VHS video tapes.
How do Small and Medium Sized Enterprises (SMEs) create a competitive market?
They create jobs, stimulate innovating and investment, and promote a competitive environment.
What economic idea did Schumpeter propose?
The idea of ‘creative destruction’.
It is the idea that new entrepreneurs are innovative, which challenges existing firms. The more productive firms then grow, while the least productive are forced to leave. This results in an expansion of the economy’s productive potential.
What is the difference between product and process innovation?
Product - small changes in the performance and features of a product.
Process - improves the production method of a good so it becomes more efficient.
What are some social benefits of investment in R&D?
It can contribute towards higher levels of economic growth. It increases GDP, higher incomes and lowers unemployment rates.
What type of goods would a government be more likely to provide a subsidy?
Merit goods, for their benefits to society. They may provide a subsidy to lower costs for a producer so then more of a certain good can be produced.
What are the disadvantages of state funding for R&D? [4]
- Opportunity cost to government of where to spend money
- Possibility of potential higher taxes
- Firms could become inefficient if they rely on subsidies, as they have little incentive to lower costs.
- Could be government failure if inefficient industries are subsidised.
What are the 4 stages of the product life cycle?
- Development
- Growth
- Maturity
- Decline
What are extension strategies used for?
Aim to lengthen the useful life of a product before it goes into decline.
What marketing techniques are used as extension strategies? [4]
- Advertisement
- Changing packaging/rebranding
- Changing the price
- Adding value to the good
