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Invention =
Discovery or creation of something brand new
Innovation =
Improvement of something that already exists, or implementation to another problem.
i.e. Taking an invention and applying it in a way that creates value by improving upon it, or finding new uses for it.
Technological Change =
The overall effect of invention, innovation and the diffusion/spread of technology in an economy over time.
Technological Change Effects on Production
Methods of Production:
More switch from labour intensive to capital intensive production
More automation (where production process is controlled by machinery)
Productivity:
Increases labour productivity - workers have better technology to work with
Increases capital productivity - improved machinery
Costs of Production:
Average costs of production will fall over time
Shift DOWNWARDS of AC
Different Types of Innovation (definition, effect on markets, example)
Sustaining = New products or methods are similar or complementary to existing ones.
→ Existing markets are developed (e.g. more competition, cheaper products, more variety)
e.g. Refrigeration allows more sale of perishable food,
Disruptive = New products or methods replace or are substitutes for existing ones.
→ Existing markets are destroyed, new markets are developed
e.g. Video streaming (Netflix) made video rental shops (Blockbuster) obsolete
Technological Change Influence on Market Structures
Makes markets MORE COMPETITIVE:
Lowers entry costs → lower barriers to entry
e.g. Invention of internet enabled e-commerce - retail businesses no longer need to set up physical shop
Undermines economies of scale - Allows firms to access cost savings regardless of size
e.g. Music making - previously had to rent expensive studio sessions to record music, now can just use apps on phone/laptop
Lower costs of production → Lower fixed costs allow more small firms to survive and more to enter the market → Supply shifts right
Makes markets LESS COMPETITIVE:
Large firms may have exclusive access to innovations - they have the capital to purchase these specialised machinery
→ May actually widen barriers to entry
e.g. Apple has well-established technical expertise