4.1.4.8 Technological change (Paper 1 & 3)

Question 1

Define invention

Answer 1

• Creation of a new idea without it necessarily becoming a commercial reality

Question 2

Define innovation

Answer 2

Transforming an invention into commercial reality

Question 3

Creative destruction

Answer 3

• Technological change can lead to development of new products and/or the development of new markets - and may DESTROY existing markets, business - therefore jobs

E.g. - mobile phone industry, car industry (impact on public transport), Uber (threat to black cabs, for example), listening to music (walkman, CD players to now online streaming), films (VHS to DVDs to streaming)

Question 4

Impact of technological change on production methods

Answer 4

• Can lead to more capital production - car production - robots replacing workers - higher capital ratio
• Can lead to more labour intensive production - medical services - require use of labour to operate them

Specialisation - and division of labour - production process broken down into production lines - thus improving productivity and efficiency

Question 5

Impact of technological change on costs of production

Answer 5

• Tech will reduce costs of reduction for firms
• Supply of individual markets will shift rightward
• LRAC fall

Therefore - specialist machinery can be brought in - achieving technical EoS
- The minimum efficient scale - can take place at a greater level of output

Question 6

Define the minimum efficient scale

Answer 6

• Lowest point that a firm can produce - LRAC are minimised as much as possible

Therefore - producing at MES means productive efficiency - producing at lowest point of LRAC

Question 7

How can technological improvements lead to improvements in efficiency?

Answer 7

• Productive efficiency will increase
• Allocative efficiency - depends on whether lower costs passed onto consumers
• Dynamic efficiency - technology improvements leads to reinvestment leading to innovation, new products, new services

Question 8

How can technological change influenced the structure of markets?

Answer 8

Can impact the following features of markets:

• Number of firms
• Product homogeneity
• Knowledge
• Barriers to entry

Ultimately - made markets more competitive and contestable

Question 9

How has technological change brought down barriers to entry?

Answer 9

• E.g. - role of the internet - B2E have come down significantly in many industries - less need for physical premises
• No physical shock - start-up costs come down, sunk costs fall
• May be easier to meet certain govt legislation and regulations if physical premises aren’t required (fewer legal barriers to entry)
• Advertising easier

Question 10

How has technological change increased barriers to entry?

Answer 10

• In some industries - B2E have increased
• EoS, firms able access greater copyrights and patents by inventing new tech - restricts competition in certain industries

Question 11

How has technological change impacted the number of firms in a market?

Answer 11

• Depends heavily on the level of B2E - which for the most part have been reduced
• Pharmaceutical industry

Question 12

How has technological change impacted product homogeneity in markets?

Answer 12

• Much greater variety of products - innovation

Question 13

How has technological change influenced knowledge within markets?

Answer 13

• Would expect to have drastically improved knowledge
• Internet - price information
• Beneficial for consumers
• Also producers - increases competition

Arguably - has become more imperfect - false information on the internet