Technological change
DEFINITION: overall e ect of invention, innovation and the di usion of spread of
technology in the economy to improve existing products and the processes involved in
making the products.
It leads to the development of new markets, changes in market structure and the
destruction of existing markets.
-Technical progress: Applies scienti c and engineering knowledge as it develops more
e cient goods. Increases economic welfare. BUT it also includes the development of
harmful goods such as chemical weapons.
INVENTIONS vs. INNOVATION
• INVENTION: making something entirely new.
• INNOVATION: improves or makes a signi cant contribution to something that has
already been invented. Turns an invention into a product.
HOW TECHNOLOGICAL CHANGE AFFECTS METHODS OF PRODUCTION,
PRODUCTIVITY, EFFICIENCY AND FIRMS’ COSTS OF PRODUCTION
• STONE/BRONZE/IRON AGE: di erent materials used to create early forms of tool used
by humankind.
• 18th CENTURY: agricultural and industrial revolutions a ected methods of production.
Manufacturing moved from craft and cottage industry to factory production. Much more
energy used.
• 19th CENTURY: rail-way building age as iron became the main industrial raw material.
• 20th CENTURY: growing of automobiles.
• PRESENT DAY: agricultural output is increasing with the development of new seeds and
breeding of modern farms animals, mechanisation of production eg. combine
harvesters and chemical fertilisers. Computers also largely used in manufacturing, in
distribution and as consumer goods in themselves.
PRODUCTIVITY —> output per unit of input per time period.
Technological change increases labour productivity.
EFFICIENCY
• PRODUCTIVE EFFICIENCY: level of output at which average costs of production are
minimised.
• DYNAMIC EFFICIENCY: occurs in LR, leading to development of new products and
more e cient processes that improve productive e ciency. Improves products and
services, innovation and process of creative destruction.
Productive e ciency centres on minimising average costs of production. Dynamic
e ciency measures the extent to which product e ciency increases over time in the LR.
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DEFINITION: overall e ect of invention, innovation and the di usion of spread of
technology in the economy to improve existing products and the processes involved in
making the products.
It leads to the development of new markets, changes in market structure and the
destruction of existing markets.
-Technical progress: Applies scienti c and engineering knowledge as it develops more
e cient goods. Increases economic welfare. BUT it also includes the development of
harmful goods such as chemical weapons.
INVENTIONS vs. INNOVATION
• INVENTION: making something entirely new.
• INNOVATION: improves or makes a signi cant contribution to something that has
already been invented. Turns an invention into a product.
HOW TECHNOLOGICAL CHANGE AFFECTS METHODS OF PRODUCTION,
PRODUCTIVITY, EFFICIENCY AND FIRMS’ COSTS OF PRODUCTION
• STONE/BRONZE/IRON AGE: di erent materials used to create early forms of tool used
by humankind.
• 18th CENTURY: agricultural and industrial revolutions a ected methods of production.
Manufacturing moved from craft and cottage industry to factory production. Much more
energy used.
• 19th CENTURY: rail-way building age as iron became the main industrial raw material.
• 20th CENTURY: growing of automobiles.
• PRESENT DAY: agricultural output is increasing with the development of new seeds and
breeding of modern farms animals, mechanisation of production eg. combine
harvesters and chemical fertilisers. Computers also largely used in manufacturing, in
distribution and as consumer goods in themselves.
PRODUCTIVITY —> output per unit of input per time period.
Technological change increases labour productivity.
EFFICIENCY
• PRODUCTIVE EFFICIENCY: level of output at which average costs of production are
minimised.
• DYNAMIC EFFICIENCY: occurs in LR, leading to development of new products and
more e cient processes that improve productive e ciency. Improves products and
services, innovation and process of creative destruction.
Productive e ciency centres on minimising average costs of production. Dynamic
e ciency measures the extent to which product e ciency increases over time in the LR.
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