4.1.4.8 Technological change Flashcards
Define Technological change
The overall effect of invention, innovation and the diffusion or spread of technology in the economy.
Define Innovation
Improves on or makes a significant contribution to something that has already been invented thereby turning the results of invention into a product.
Define Invention
Making something entirely new something that did not exist before at all.
Product innovations
A launch of a new good or service which has improved on the previous version. Creates a unique selling point
Process innovation
A new way of producing a good or service. This will lower production costs for the firm. The firm could lower price or keep price the same to increase profit.
Production costs: Tech change moves production from labour intensive to capital intensive.
This will mean high costs in the short run but should lead to greater productivity, increasing potential for economies of scale. The shift from labour intensive to capital intensive can lead to technological unemployment.
Technological change increasing productivity
Tech change can increase productivity. This can increase productive efficiency and help the economy meet more needs and wants. This increases living standards.
Technological change and productive efficiency
This is when average costs are at their lowest point. This is when MC=AC. Technological change tends to lead to lower average costs. Particularly process innovation.
When is a firms average costs the lowest ?
When it’s equal to mc
Creative Destruction
Where technological change leads to the development of new “disruptive” products which outperform existing products
Netflix destroyed DVD rental
Dynamic Effciency link with Technological change
Invention, Innovation and Investment will shift the LRAC curve downwards. less resources used in production due to higher productivity
improving dynamic efficiency will increase costs in the short term but will lead to benefits in the long run
Mechanisation
The increased use of machinery. Mechanisation normally means that many people lose their jobs.
automation
The use of centralized technology to control the production process
Dynamic efficiency
occurs in the long run, when re-invested supernormal profits lead to the development of new products and more efficient processes that improve productive efficiency
What can technological change lead to
Technological change can lead to the development of new products, the development of new markets and may destroy existing markets.
