2.1.3 Research and development (R&D) and innovation

Question 1

What is R&D

Answer 1

Is investment in research with the intention of improving goods and services, introducing new ones, or improving methods of production.

Question 2

How can R&D increase market power

Answer 2

It can help give products a USP by differentiating them from rival products.

Question 3

What is product innovation

Answer 3

Refers to small changes in the performance and features of a product.

Question 4

Process innovation

Answer 4

Improves the production method of a good, so it becomes more efficient.

Question 5

What is the role of state funding

Answer 5

Increases in research and development can contribute towards higher levels of economic growth.

Question 6

Advantages of state funding

Answer 6

1. Increases in GDP, higher incomes and lower unemployment rates.
2. It’s expensive for firms to undertake R&D
   - state provides this

Question 7

Disadvantages of state funding

Answer 7

1. Opportunity cost to the government
2. the potential for higher taxes in order to fund the extra government spending.
3. Firms could become inefficient if they rely on subsidies, since they have little incentive to lower their costs.
4. Government failure if inefficient industries are subsidised.

Question 8

The product life cycle shows the stages that exist in the life of products. ( there’s 4)

Answer 8

1. Development
2. Growth
3. Maturity
4. Decline