Unit 21

Question 1

Invention

Answer 1

We use the word innovation to refer to both the development of new methods of production and new products (invention)

Radical innovation & Incremental innovation

Question 2

diffusion

Answer 2

and the spread of the invention throughout the economy (diffusion)

Question 3

Process innovation

Answer 3

Producing a good at lower costs than its competitors

Question 4

Product innovation

Answer 4

A new product that will attract buyers

Question 5

radical innovation

Answer 5

creating a brand new technology or idea which delivers new value

Question 6

Incremental innovation

Answer 6

Innovates a existing technology/service/product

Question 7

innovation rents

Answer 7

Individuals or companies who deliver a socially beneficial innovation, deliver a profit above the opportunity cost of capital

Question 8

general-purpose technologies

Answer 8

Technological advances that can be applied to many sectors, and spawn further innovations. Information and communications technology (ICT), and electricity are two common examples.

Question 9

Codified knowledge

Answer 9

Knowledge that canoe written down, and can be copied by others and be implemented (such as a formula to make drugs)

Question 10

tacit knowledge

Answer 10

Knowledge made up of the judgements, know-how, and other skills of those participating in the innovation process. The type of knowledge that cannot be accurately written down.

Question 11

Non-compete contract

Answer 11

A contract of employment containing a provision or agreement by which the worker cannot leave to work for a competitor. This may reduce the reservation option of the worker, lowering the wage that the employer needs to pay

Question 12

complements

Answer 12

Two goods for which an increase in the price of one leads to a decrease in the quantity demanded of the other. See also:

Question 13

Substitutes

Answer 13

Two goods for which an increase in the price of one leads to an increase in the quantity demanded of the other

Question 14

network external effects

Answer 14

An external effect of one person’s action on another, occuring because the two are connected in a network

Question 15

winner-take-all competition

Answer 15

Firms entering a market first can often dominate the entire market, at least temporarily

Question 16

Matching Market

Answer 16

A market that matches members of two distinct groups of people. Each person in the market would benefit from being connected to the right member of the other group

Question 17

strategic complements

Answer 17

For two activities A and B: the more that A is performed, the greater the benefits of performing B, and the more that B is performed the greater the benefits of performing A