Technological change (micro) Flashcards
Define invention
Process of creating a new product or a new way of making a product.
Give an example of an invention?
invention of the transistor in 1947
Define innovation
Innovation is the act of improving or contributing to existing products
Give an example of a product that has been innovated?
The transistor was invented in 1947, recent innovations have involved using smaller and smaller transistors in new devices like phones, creating the smart phone.
What is ‘first mover advantage’?
for successful innovators that gives them scope to exploit some monopoly power in a market - especially if they have a patent.
What is creative destruction?
a process through which something new brings about the demise of whatever existed before it (a change in market structure)
- If a new dominant design or product is developed, the structure of a particular industry can reform around it.
Give an example of creative destruction?
Airbnb - creative destruction to the travel industry.
How has airbnb created creative destruction?
Service - Allows customers independence - can shop and cook for themselves
Price - really good price usually for the quality of accommodation provided.
Convenience - airbnb tends to be more flexible than hotels in terms of arrival and departure times (easy check in and check out procedures)
What will happen to firms who do not incorporate or adapt to new technology?
They will be forced out of the market
capital intensive production
production process that requires a high percentage of investment in fixed assets (machines, capital, plant)
Technology can improve the standard of capital machinery used; what may this effect?
- Labour productivity and efficiency (increased)
- Economies of scale (more opportunities to take advantage of this)
What does improvements in efficiency and productivity due to technological change mean for firms?
- Lower costs of production for firms.
- The quality and quantity of goods and services produced might improve.
How might improvements in technology change a market structure?
- Improvements in technology may reduce entry barriers to markets, increasing the level of contestability.
What might happen if technology is patented?
legal restrictions are in place stopping other firms replicating the product for the time period,
- this can create a monopoly through a legal barrier to entry
How can a monopolistic market strucutre influence technological change?
- Monopolies do not have an incentive to innovate, since they have no competition.
- this means they are often inefficient and their costs are higher than they could be.
