4.8 Technological Change

Question 1

Define invention

Answer 1

• the process of creating a new product or a new way to make a product

Question 2

Define innovation

Answer 2

• is the act of improving or contributing to existing products.

Question 3

How can technological change can affect methods of production, productivity,
efficiency and firms’ costs of production?

Answer 3

• can result in improvements in efficiency and productivity, which lowers costs of production for firms.
• The quality and quantity of goods and services produced might improve.
• can lead to the development of new products, the development of new markets and may destroy existing markets.
• Small and Medium Sized Enterprises (SMEs) are important for creating a competitive market. They create jobs, stimulate innovation and investment and promote a competitive environment.

Question 4

Which economist proposed the idea of ‘creative destruction’

Answer 4

• Schumpeter
• The process of creative destruction is linked to technological change.
• This is the idea that new entrepreneurs are innovative, which challenges existing firms.
• The more productive firms then grow, whilst the least productive are forced to leave the market.
• This results in an expansion of the economy’s productive potential.

Question 5

How does technological change influence the structure of markets?
Monopolies

Answer 5

• Monopolies do not have an incentive to innovate, since they have no competition.
• means they are often inefficient and their costs are higher than they could be

Question 6

How does technological change influence the structure of markets?
Oligopolies

Answer 6

• Oligopolies tend to have more of an incentive to innovate, since they are earning supernormal profits and are trying to get ahead of their competitors.
• This means that technological change is quite fast in oligopolies