year2 micro - behavioural evonomics and other stuff

Question 1

what is invention

Answer 1

creation of a new idea without it necessarily becoming a commercial reality

Question 2

what is innovation

Answer 2

transforming an invention into commercial reality

Question 3

impacts of technological innovation and invention

Answer 3

1. Lower LRAC and Increased Economies of Scale
   - Technological advancements lead to more efficient production processes, reducing long-run average costs (LRAC).
   - Automation and digitalisation help firms produce at larger scales with lower per-unit costs, enabling greater economies of scale.
   - As firms expand, they can spread fixed costs over higher output, leading to increased profitability and competitiveness.
2. Increased Productive, Dynamic, and Allocative Efficiency
   - New technologies improve productive efficiency by reducing wastage and increasing output per worker. Firms invest in research and development (R&D), leading to dynamic efficiency, where new products and improved processes emerge over time.
   - Additionally, technological improvements enable firms to better meet consumer preferences, enhancing allocative efficiency by directing resources towards goods and services that provide the greatest consumer satisfaction.
3. Lower Barriers to Entry
   - Technology reduces entry costs for new firms, especially in industries where digital platforms, automation, and cloud computing lower capital requirements.
   - This increases market contestability, reducing monopolistic power and fostering competition. New entrants can challenge established firms by innovating more rapidly or offering more efficient solutions, leading to greater consumer benefits.
4. Less Product Homogeneity and Greater Differentiation
   - Innovation allows firms to introduce differentiated products, reducing reliance on homogeneous goods.
   - Advances in technology enable customisation, product variety, and enhanced consumer experiences, making markets more competitive.
   - This increased differentiation can lead to brand loyalty and higher consumer surplus as firms cater more effectively to diverse needs.

Question 4

evaluation points for technological impacts being beneficial

Answer 4

1. Unequal Access to Technology
   Technological advancements may not be evenly distributed, with larger firms and developed economies benefiting more than smaller businesses or developing nations. This can widen income inequalities and limit global economic convergence.
2. Risk of Technological Unemployment
   Automation and AI can replace human labor in many industries, leading to job losses, especially for low-skilled workers. Without adequate retraining and labor market policies, structural unemployment may rise, creating social and economic challenges.
3. High Initial Investment Costs
   Developing and implementing new technology often requires significant capital investment. Smaller firms may struggle to afford the latest innovations, leading to market concentration where only large firms can remain competitive, potentially reducing market contestability in the long run.
4. Potential for Market Disruption and Monopolisation
   Technological change can disrupt existing industries, leading to dominant firms gaining excessive market power. Companies that pioneer breakthrough innovations may establish monopolies or oligopolies, limiting competition and consumer choice in the long run. Regulatory frameworks may struggle to keep pace with technological advancements, exacerbating these risks.