Economics - Technology & Innovation (Section 4) Flashcards
In 1820, what was the income of 90% of the world?
> $1.90 per day
In European countries in 1500, what percentage of the workforce were farmers?
50-75%
In the United States as far as the late 1800’s, what percentage of the workforce were farmers?
46%
What percentage of the same workforce were working blue collar jobs?
34%
What jobs did the last 16% of people work?
8% worked domestic service, the other 8% worked in jobs that required creativity, such as being a manager
TRUE OR FALSE: People retired early on in life.
FALSE; people often never retired, working until they were physically unable or until they died.
What are the three themes of the standard of living?
- Material hardship (i.e. work, home, food, possessions) 2. Isolation 3. Disease and disaster
What was burned to heat the stove?
Wood, coal, peat, turf, or animal dung
What could be damaged by the smoke of the fires made by these fuels?
Eyes and lungs
What were candles typically made of, making them so expensive?
Animal fat
How were foods preserved preindustrial era?
drying, salting, smoking, pickling, or turning into preserves
How much did a clock cost in 1800?
$50
What is today’s equivalent of $50 in 1800’s dollars?
Today, the equivalent is $1,000
Who could have afforded a clock?
2% of wealthy white adults.
What were the main ways information spread?
Horses or ships
Why was everything so localized?
Travel was uncomfortable and slow, keeping people in their own limited social circles.
What percentage of the world population was literate in 1800?
12%
What were the main types of infectious diseases?
plague, smallpox, malaria, tuberculosis, cholera, polio, etc.
TRUE OR FALSE: Disease only affected the poor.
FALSE; Disease went for the wealthy and the poor, mainly due to poor hygiene
Who were particularly susceptible to passing from disease?
Children, a quarter dying in their first year and half dying before reaching young adulthood
About how much of the population in Europe did the Black Plague kill?
Half (1/2) to One-third (1/3)
Who coined the term “Great Enrichment”?
The improvements in living standards over the last couple centuries are so dramatic that economic historian Deirdre McCloskey has termed this transformation “the Great Enrichment.”
For what country’s navy was the set of machines for pulley blocks created for?
A set of machines was created for the British navy to manufacture pulley blocks
What were the advantages of thread-spinning machines?
For instance, some of the first thread-spinning machines not only saved human spinning labor, but were also able to spin very fine thread, which was used for the highest quality fabrics.
How was the process for making steel in the 1800s?
Through the early 1800s, the only processes to make steel were labor-intensive, taking weeks of heating in special ovens or crucibles.
Who dicovered a way to make steel faster?
English inventor Henry Bessemer (1813−98) discovered a way to make steel by blasting the molten metal with air—reducing the process to about twenty minutes.
How did the method by Henry Bessemer to make steel work?
English inventor Henry Bessemer (1813−98) discovered a way to make steel by blasting the molten metal with air.
What is cement’s main ingredient?
Its main ingredient is crushed limestone.
What is the chemical result of burning crushed limestone at high temperatures?
Crushed limestone is kilned at high temperatures to transform it from calcium carbonate (CaCO3) to calcium oxide (CaO).
What can be mix in with cement to improve it?
Cement can be improved by mixing in silicates, such as clay or volcanic ash.
How do silicates improve cement when they are mix with it?
They can make the material harder or allow it to set underwater.
What is the first phase of technology-driven economic growth known as?
the first Industrial Revolution
Where did the first Industrial Revolution begin?
Britain in the mid-1700s
What were some major inventions of the first Industrial Revolution?
steam engines, textile machinery, horse-drawn agricultural machinery, and the locomotive (most were mechanical devices)
The second Industrial Revolution was influenced by?
advancements in science that was the foundation for technological breakthroughs
When did industrial leadership shift to the United States from Britain?
during the second Industrial Revolution and especially after the World Wars
What is referred to as the “third Industrial Revolution”?
the technological progress with digital technologies: computers and the internet
How do economists define technology?
a technology is a way of transforming one set of inputs into outputs
What are the two types of technological progress?
process and product innovation
What does process innovations consist of?
the discovery of new and more efficient ways to transform inputs into outputs
Who discovered a way to make steel that required less intense human labor (an example of process innovations)?
Henry Bessemer
What are product innovations?
are discoveries of ways to transform inputs into entirely new outputs
What’s an example of product innovation (used in the packet)?
the creation of new synthetic materials like plastic
What is the definition of labor productivity?
the amount of output produced per worker or per worker-hour
What is required to increase for there to be an increase in per capita income?
labor productivity
What can cause an increase in labor productivity?
capital equipment and an increase in the quality of the product which typically happens with time
True or False? Capital investment is the only thing needed for the Great Enrichment.
False
Who developed a model of economic growth that shed light on the drivers of labor productivity?
Robert Solow
What was Robert Solow’s formula for economic output called?
production function
Solow’s production function is in the form?
Y = AK^1/3 * L^2/3
What does Y stand for in Solow’s product function formula?
total economic output or GDP
What does K and L stand for in Solow’s product function formula?
capital and labor, respectively
What is A Solow’s product function formula?
it is a multiplier representing technical factors (i.e. new inventions or processes, or better ways of organizing factories)
Today what is the A from Solow’s product function formula known as?
total factor productivity or TFP
What does Solow’s model indicate?
that if you doubled all the people and machines used to produce GDP, GDP would also double
Using Solow’s product function formula, if we want to increase income what needs to be increased instead of how much is produced in total?
how much each worker produces
To increase how much each worker produces to increase income using Solow’s formula, by adding capital what is the result if the number of workers is fixed?
there is an increase in worker productivity but the diminishing returns to productivity impose limits on this process. GDP will increase but less and less each time
True or False? Capital accumulation cannot sustain long term increases in per-capita income (a conclusion of Solow’s model)
True
Sustained increases in capital accumulation and labor productivity are the results of sustained increases in?
total factor productivity or TFP
What does total factor productivity capture?
differences in technology
According to Solow’s findings, improvements in technical factors drive what?
sustained growth (which is not driven by capital accumulation)
Who coined the term “creative destruction”?
Joseph Schumpter
What does creative destruction mean?
technological progress can be bad for old industries that produce technologies that are rendered obsolete by progress, even if it is typically good for society as a whole
What is technological unemployment?
the fear that automation might lead to rising unemployment
True or False? There has been a rise in unemployment as a consequence of technological progress
False
What percentage of annual GDP is directly contributed to by technological progress?
1%
What’s the most important reason for differences in GDP per capita according to Solow’s work?
differences in technology
What percentage of GDP is classified as spending on research and development (R&D) in the U.S.?
2.50%
What country is the largest R&D funder?
the United States (accounts for 27% of global R&D)
How much percent of global R&D do China and Europe each fund?
22%
Where does R&D funding come from?
private industry, the government, and non-profit organization
Private industry is the source of what percentage of the total R&D spending in the U.S.?
73%
Federal government is the source of what percentage of the total R&D spending in the U.S.?
20%
Non-profit foundations, state governments, and universities are the source of what percentage of the total R&D spending in the U.S.?
7%
What is a rival good?
is one that cannot be shared between more than one person without diminishing it in some way
What are non-rival goods?
infinitely extendable; multiple people can use them simultaneously
What type of goods are ideas?
non-rival goods
For every dollar of R&D we spend, how much is produced in value in the long run?
$3.60
Why did economist Paul Romer win the 2018 Nobel Prize?
for his research on endogenous growth theory
What did the endogenous growth theory bring?
the decision to invent into economic models of growth, instead of simply assuming technological progress just happens
Economists assume that the decisions of entrepreneurs and inventors through lens of?
self-interested profit maximization
What is an excludable good?
a good that you can prevent other people from using
What is a non-excludable good?
is one where it is impossible to prevent people from accessing it
What makes R&D less valuable to the individual than it is to a society?
they are partially non-rival and non-excludable
What happens to the price of goods when many firms compete in the market to sell the same good?
the price will tend to fall to the level of the average cost of producing the good
What happens to the price of goods when many firms compete in the market to sell the same good?
the price will tend to fall to the level of the average cost of producing the good
What is the appropriability?
how much of the social value of an innovation the inventor can capture for themselves
What are the four main ways firms can try to appropriate the value of innovation?
secrecy, lead time, complementary assets, and intellectual property
SECRECY
It’s a way to stop competitors from stealing an idea. This method isn’t based on hiding the components of a product (because it is impossible to prevent a firm from buying the product and carefully studying it) but on the manufacturing method (a firm can easily keep competitors out of the factory).
LEAD TIME
The time the original inventor has to keep a lead by improving and investing in his new product before rivals learn how to improve the creation and/or produce better technology.
COMPLEMENTARY ASSETS
Factors that provide advantages to firms on their new products (ex.: rare materials, great reputation, special skills, large sales force, etc.)
NETWORK EFFECTS
Technologies that become more valuable the more users they have (ex.: Facebook, Twitter, etc.). It is really hard for market rivals to compete with these platforms because they are based on the presence of users to interact with and if there are no users there is no interaction, if there isn’t interaction, people won’t download it.
ECONOMIES OF SCALE
The process where the increase of the production causes a decrease in the average cost of each unit produced.
How do competitors keep their ideas from being stolen?
Secrecy. Either they swear an oath and seal it with blood ritualistically,(not usually advised) or they keep their methods of manufacturing in the shadows.
What types of products is secrecy most used in?
Ones that are hard to reverse engineer
How much of innovations were kept secure and protected by using secrecy?
About 1/2, according to surveys of manufacturing firms.
What specifically does secrecy not prevent?
rival companies R&D reinventing something discovered elsewhere
What is lead time?
Basically the time between the original invention and a different company making it.
How can the original inventor of an innovation keep a lead on rival companies?
Using lead time to improve the innovation
Why are secrecy and lead times important for the original innovator?
They make sure that their invention is THEIRS.
What is a complimentary asset?
A thing that gives innovators and producers a distinct advantage over producing a certain product.
What is the Network Effect?
A term coined by Alan T. Effect, the Network Effect is basically where an innovation gets more valuable when more people use it.
Economies of scale is WHAT?
Kind of where if production of a certain good goes up, then the average cost for one unit of whatever the heck is being produced goes down.
What are intellectual property rights?
Companies either bribe or rig the legal system (LEGALLY cough cough) to “Make a non excludable good excludable.” that means that they get the rights to exclude their good. legally. Yeah, right. Like if Disney didn’t want everyone to own mickey mouse they’d bribe the judges (Mickey Mouse Protection Act, 1998) and get an intellectual property right (copyright/trademark) to make Mickey Mouse exclusively Disney’s)
What are some types of intellectual properties?
Patents, trademarks, and copyrights.
Which type of intellectual property right is most relevant for innovation?
patents
What do patents do?
They let the manufacturer charge more than production cost, they let the invention be protected, and they can also make other companies pay to produce an invention.
When is the only time that Secrecy, Lead Time, and Complimentary assets work?
the inventor is involved in manufacturing and selling their invention.
What percent of inventions are protected by patents?
20 to 35%
True or false? Smaller firms use more patents than larger firms.
False
Who “argued that scientists’ invention of the experimental method, where you systematically change just one thing at a time and carefully observe the results, was later adapted by the inventors of the first steam engines to learn exactly what designs worked best.”?
David Wootton
Did David Wootton like trains?
Hard to say. He sure argued a lot about them.Maybe he really liked them. or maybe he hated trains. Or maybe he was in the middle and was all like, “Meh, trains are alright, i guess” and just used them to argue about economics.
What is a knowledge spillover?
Where one discovery lets another person to make another discover and all that. Imagine orange juice spilling onto the floor and staining the carpet allowing someone else to have reason to get the floors recarpeted. And then those floor being recarpeted increases the property value of the house allowing the real estate manager to get more money to buy a Porshe, therefore stimulating the economy. Boom. Science.
As long as a firm can keep its secrets, it can enjoy a __ __ over its rivals.
Competitive advantage
Both secrecy and lead time depend on __ rival firms from learning about a new invention.
Preventing
If you don’t have access to any clay or volcanic ash, then
knowing how to make concrete with it doesn’t help
you actually make it. What are the complimentary assets in this example?
Clay and volcanic ash
firms report __ to __ percent of inventions are well protected by complementary manufacturing, sales, or
service assets
30, 50
network affects
technologies that become more valuable the more users they have
examples of network affects
twitter and facebook
economies of scale.
the average cost of producing goods
falls as you produce more
economies of scale require the ability to __ __
Break Even
Economies of scale mean big producers can afford to sell at a (higher/lower) price than small rivals and still earn a profit
Lower
intellectual property
making a non-excludable good excludable.
common forms of intellectual property
patents, trademarks, and copyrights
most relevant form of intellectual property for inventions
patents
patents have what benefit
allows an inventor to decide how their
patented invention can be used for a period of up to twenty years.
patents allow inventors to…
charge a price above manufacturing cost for twenty years and to prevent competitors from copying the invention.
patents are the (least/most) common method used to protect innovations.
least
firms say only __ to __ percent of their inventions are well protected by patents
20, 35
Knowledge spillover
When research conducted by one organization enables
another to make new discoveries or invent other
technologies
Knowledge spillovers are a (positive/negative) externality
positive
__ percent of R&D today is funded by either the government or other non-profit organizations.
27%
economists estimate that on average, every dollar spent on R&D returns at least $__ in social value.
$3.60
when did the “second Industrial Revolution.” happen?
1800
Electromagnetism was the foundation for?
for electric power and for electronic communications
what era was the light bulb invented?
1800s
when did the “third Industrial Revolution” happen?
1900s
higher standard of living was made possible form what?
industrial development
what countries have achieved industrial development?
Japan, South Korea, Taiwan, and China.
What do economics consider “technology”?
is a way of transforming one set of inputs into outputs.
what is an example of technology for economics?
agriculture tells us how to convert inputs like labor, soil, seeds, water, fertilizer, tractors, and so on into outputs like corn or wheat.
Technological progress can come in how many flavors?
2
who wrote “creative destruction” to describe the way in which old methods of doing things are replaced by new and more productive ways.”?
Joseph Schumpeter
what was Joseph Schumpeter occupation?
Economist
what was the main drive for the great enrichment?
technological progress
“creative destruction” describes what?
the way in which old methods of doing things are replaced by new and more productive ways.
what is a example of creative destruction?
invention of the personal computer was bad news for the typewriter industry, the availability of computers probably made society better off overall.
has the concern for technological unemployment been confirmed so far?
nope tec hasn’t replaced people who have a set skill yet for cheaper labor increasing unemployment
Why is technological unemployment not a problem?
because technological progress creates new jobs, even as it destroys old ones.
what example of technological progress not affecting unemployment rates
example, new technologies usually require new kinds of skills to manufacture and maintain them.
could technology unemployment become a problem in the future?
yes because just because in the past it hasn’t been a problem it could become one at any rate w/ new tec coming out all the time
what is a key concept in economic growth?
capsule history of technological
what is a key concept in economic growth?
capsule history of industrial development
What was used as an insulating material before plastic was created?
Before plastic, when people needed a lightweight, waterproof, insulating material, they often used animal parts, such as elephant ivory, tortoise shells, or whale bones.
How did farmers replenish crop field’s nutrients in ancient times?
In ancient and medieval times, farmers left fields “fallow” (without crops) part of the time, planted special crops, such as legumes, which replenish nutrients, and used manure as fertilizer.
What was used as fertilizer by the 1800s?
By the 1800s, higher yields were achieved from natural fertilizers sourced from around the world, such as rock salts and guano (seabird droppings) from South America.
What is the Haber-Bosch process?
A process to create ammonia (NH3) a precursor of fertilizer. It has been estimated that fertilizer from the Haber-Bosch process is now responsible for about half of all food produced on Earth.
How is ammonia created?
Combining nitrogen gas with hydrogen gas.
What are the growing conditions that influence crop variety?
Each crop variety flourishes under certain growing conditions, including temperature, sunlight, rain, and length of the growing season.
Before the industrial revolution, where did mechanical energy come from?
Before the Industrial Revolution, mechanical energy came mainly from water, wind, and muscles (both animal and human).
What was the first steam engine?
Thomas Newcomen’s engine of 1712.
What drove the piston in the first steam engine?
Condensed steam in the cylinder creates a vacuum, allowing external atmospheric pressure to drive the piston.
What were steam engines first used for?
Steam engines were first applied to pump water out of mines.
INTELLECTUAL PROPRETY RIGHT
The right that the companies obtain to make their product exclusively theirs and not replicable
DAVID WOOTTON
professor of University of York that argued about the experimental method adapted by engineers to decide what design worked best for steam engines.
PATENT, TRADE MARKS, COPYRIGHTS, INDUSTRIAL DESIGNS AND IP. ARE ALL EXAMPLES OF WHAT?
Intellectual Property rights
KNOWLEDGE SPILLOVER
Chain of knowledges that leads to improvements in a specific invention
FACEBOOK, INSTAGRAM, TWITTER. THEY ALL CONTRIBUTE IN…
The network effect
PATENT
Allows owner to have all rights over their product up to 20 years making exclusively theirs.
SECRECY, LEAD TIME, COMPLEMENTARY ASSETS, THEY ALL PROVIDE…
Advantages over competitors.
R&D
stands for Research and Development. It is a reductions in tax espenses because of demoestic works, use of special materials or, in general, methods applied by companies to improve their technologies and increase their knowledge, that has to be approved.
R&D TAX CREDIT
Usually 1$ returns in $3.60.
SURVEYS, STUDIES, FOREIGN AND SOCIAL SCIENCE RESOURCES ARE…
R&D approved examples.
WHAT IS THAT MAKES ECONOMIES OF SCALE WORK?
to make economies of scale work they have to break even. This means that the income mustn’t change even if the production and the price does.
RARE MATERIALS, GREAT REPUTATION, SPECIAL SKILLS ARE EXAMPLE OF…
Complementary assets.
WHAT MAKES SECRECY WORK?
keeping secret a sophisticated manufacturing method.
ECONOMIES OF SCALE BENEFITS SMALL FIRMS (true/false)
false. They would need to spend way more than what they get as an income.
WHAT IS THE PERCENTAGE OF PROTECTION OBTAINED BY PATENTS?
20 to 30%. For this reason small firms rather avoid Patents as a method of protection.
What two strategies prevent rival firms from learning about a new invention
Secrecy and lead time
What accounts for a large share of the value in Research and Development?
knowledge spillover
What percent of R&D today is funded by either the government or other or other non profit organizations
27%
What is one of the factors that affects how much companies invest R&D
size of the market
A city full of _____ is also most likely to have who are willing to lend money to inventors, so they can do R&D
investors
What does the agglomeration benefit refer to
The innovation boost that cities bring about is a for of agglomeration benefit, a term that refers more generally to the ways cities bring about more productive workers
What percent of inventions are well protected by patents?
Manufacturing firms say only 20 to 35 percent of their inventions are well protected by patents
