2.5 Technological change

Question 1

What is technological change?

Answer 1

Improving existing technologies and the development of completely new technologies

Question 2

Define invention

Answer 2

Making something entirely new

Question 3

Define Innovation

Answer 3

Improves something that has already been invented

Question 4

Define technological progress

Answer 4

Occurs when technological change increases output for the same given factor inputs

Question 5

How can technological progress increase the number of firms in an industry?

Answer 5

• This helps to reduce barriers to entry e.g. the internet allows cheap access to global markets
• There is therefore greater scope for competition
• This reduces monopoly power, increasing the number of firms in the industry

Question 6

How can technological change cause higher fixed costs in a market?

Answer 6

• Lead to a requirement to produce significant output in some industries in order to recoup start-up and R&D costs
• Require increased scale of production in order to attain the minimum efficient scale
• Thus creating barriers to entry and a tendency towards oligopolistic markets

Question 7

Define dynamic efficiency

Answer 7

Occurs in the long run, leading to the development of new products and more efficient processes that improve productive efficiency

Question 8

Define productive efficiency

Answer 8

The level of output at which acreage costs of production are minimised

Question 9

What is meant by the term creative desruction?

Answer 9

Innovation leads to the development of new products and processes that displace firms that currently dominate industries