4.1.4.8 Technological change Flashcards
(24 cards)
What is the difference between invention and innovation?
Invention: Creating a new product or production method.
Innovation: Improving or contributing to existing products or methods.
How does technological change affect production methods?
Technological change can lead to more efficient production methods, reducing costs and increasing productivity.
How does technological change affect productivity?
Technological change improves productivity by enabling firms to produce more output with the same or fewer inputs.
How does technological change affect firms’ costs of production?
Technological change can lower costs of production by improving efficiency and reducing waste.
What is an example of technological change reducing costs?
Mobile phones have become cheaper to produce due to technological advancements, leading to lower prices for consumers.
How does technological change lead to new products?
Technological change enables the development of new products, such as smartphones replacing traditional mobile phones.
How Technological Change Leads to New Products
Technological change drives the creation of new products by enabling innovation, improving efficiency, and responding to consumer demands. This process can be analyzed through invention, research & development (R&D), market competition, and consumer behavior.
1. Invention and R&D
Scientific Breakthroughs: Advances in technology (e.g., AI, nanotechnology, biotechnology) allow firms to develop previously impossible products (e.g., mRNA vaccines, smartphones).
Lower Production Costs: Improved manufacturing tech (e.g., 3D printing) makes prototyping and small-scale production cheaper, encouraging experimentation.
Example: Tesla’s advancements in battery technology led to more efficient electric vehicles (EVs), disrupting the auto industry.
2. Market Competition and Disruptive Innovation
Pressure to Innovate: Firms invest in R&D to stay ahead (e.g., Apple vs. Samsung in smartphone features).
Disruptive Technologies: New tech can make old products obsolete (e.g., streaming services replacing DVDs).
Example: Netflix’s shift from DVDs to streaming was driven by broadband improvements.
3. Consumer Demand and Customization
Changing Preferences: Tech allows personalized products (e.g., Spotify’s AI-generated playlists).
New Needs: Remote work tools (e.g., Zoom) emerged due to digitalization and COVID-19.
4. Spillover Effects Across Industries
Cross-Sector Innovation: Tech from one industry can transform another (e.g., GPS, originally military, now used in Uber).
Example: Blockchain (from cryptocurrency) is now used in supply chain tracking.
Evaluation & Conclusion
While technological change spurs new products, barriers exist:
✔ High R&D costs may limit small firms.
✔ Regulation (e.g., drug testing delays) slows market entry.
✔ Creative Destruction (Schumpeter) means some industries decline (e.g., film cameras vs. smartphones).
How does technological change create new markets?
Technological change can create new markets by introducing innovative products or services, such as streaming services replacing DVDs.
How does technological change destroy existing markets?
Technological change can render existing products obsolete, such as VHS tapes being replaced by DVDs and streaming services.
What is creative destruction?
Creative destruction is the process by which innovation from new firms challenges existing firms, leading to the growth of productive firms and the decline of less productive ones.
Who proposed the concept of creative destruction?
Economist Joseph Schumpeter proposed the concept of creative destruction.
How does creative destruction affect the economy?
Creative destruction expands the economy’s productive potential by encouraging innovation and efficiency
What role do SMEs play in technological change?
SMEs (Small and Medium-sized Enterprises) stimulate innovation, create jobs, and promote competition, driving technological change.
The Role of SMEs in Technological Change
Small and medium-sized enterprises (SMEs) play a crucial role in driving technological change, often acting as key innovators, disruptors, and adopters of new technologies. Their contributions can be analyzed in terms of innovation, competition, flexibility, and diffusion of technology.
- SMEs as Innovators and Disruptors
Agility and Risk-Taking: Unlike large corporations, SMEs are more flexible and willing to experiment with new technologies. Start-ups (a subset of SMEs) frequently pioneer breakthroughs—e.g., fintech firms like Revolut disrupting traditional banking.
Niche Market Focus: SMEs often develop specialized technologies for underserved markets. For example, biotech SMEs may focus on rare disease treatments, filling gaps left by large pharmaceutical firms.
- Competition and Market Dynamics
Pressuring Larger Firms: SMEs force established companies to innovate by introducing cheaper or more efficient alternatives (e.g., renewable energy SMEs pushing fossil fuel firms to adopt green tech).
Entrepreneurial Ecosystems: Tech hubs (e.g., Silicon Valley) thrive due to SME-driven innovation, attracting venture capital and fostering collaboration between start-ups and academia.
- Adoption and Diffusion of Technology
Early Adopters: SMEs often integrate new technologies (e.g., AI, cloud computing) faster than large firms due to fewer bureaucratic barriers.
Supply Chain Modernization: SMEs adopting digital tools (e.g., e-commerce platforms, blockchain for logistics) improve efficiency across entire industries.
- Challenges Faced by SMEs in Driving Technological Change
Limited Funding: Many lack R&D budgets, relying on venture capital or government grants (e.g., UK’s Innovate UK scheme).
Scale Limitations: Even with innovative products, SMEs may struggle to mass-produce or compete globally without partnerships.
Evaluation & Conclusion
While SMEs are not the sole drivers of technological progress, their role is disproportionately significant given their size. They accelerate innovation cycles, enhance competition, and help diffuse technology across sectors. However, their impact depends on access to finance, supportive policies (e.g., tax incentives for R&D), and collaboration with larger firms and research institutions.
Thus, SMEs are vital catalysts of technological change, particularly in dynamic, fast-evolving industries like IT, biotech, and green energy.
How does technological change influence market structure?
Technological change can alter market structures by enabling new firms to enter markets, increasing competition, and potentially reducing monopoly power.
Why do monopolies lack incentives to innovate?
Monopolies lack competition, reducing their incentive to innovate and leading to inefficiency and higher costs.
Why do oligopolies have strong incentives to innovate?
Oligopolies earn supernormal profits and compete to stay ahead, driving rapid technological change and innovation.
What is the impact of technological change on product quality?
Technological change often improves product quality, as seen in the evolution of mobile phones from basic models to advanced smartphones.
How does technological change affect consumer choice?
Technological change increases consumer choice by introducing new products and improving existing ones.
What is the relationship between technological change and efficiency?
Technological change improves efficiency by enabling firms to produce more output with fewer resources, reducing waste and costs.
How does technological change impact employment?
Technological change can both create and destroy jobs, as new industries emerge while old ones decline.
What is the role of competition in technological change?
Competition drives firms to innovate and adopt new technologies to maintain or gain market share.
How does technological change affect market entry?
Technological change can lower barriers to entry, enabling new firms to enter markets and compete with established firms.
What is the impact of technological change on monopolies?
Technological change can challenge monopolies by introducing new competitors and reducing their market power.
How does technological change influence investment?
Technological change encourages investment in research and development (R&D) to create innovative products and processes.
What is the long-term impact of technological change on markets?
Technological change leads to dynamic markets with continuous innovation, improved products, and increased competition.
