Dynamic Efficiency and Innovation
Tuesday, January 29, 2008
Print
Email
Save this entry to my Favorites
Our AS micro teaching topic today was that of dynamic efficiency in markets and the link to the power of innovation. It seems to me that dynamic efficiency is an increasingly important aspect when we consider the welfare consequences of market structures. I regard dynamic efficiency as form of efficiency that occurs over time in the sense that a market should meet our changing needs and wants as time progresses. Naturally we expect to pay a premium price for innovative products that enhance the ‘customer experience’ or which deliver something else better than the ‘industry standard.’ But at the heart of this is the impact of process and product innovation by suppliers in the market place.
There is a whole literature out there that deals with the causes of innovative behaviour. William Baumol’s ‘The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism’ was a major contributor to the debate. And there is a really good summary of the concept of innovation in the Economist’s A-Z economics directory.
I gave the students three industries in which dynamic efficiency might be an important characteristic- motor car manufacturing; health care services and postal deliveries. In all of them there has been and continues to be a growing intensity of competition - for example the rapid growth of health tourism among nations of the European Union and the liberalisation of household and business mail deliveries in the UK sicne 2006. There were some excellent ideas generated in the mind map. It quickly becomes clear that innovation is a driving dynamic of a competitive market, but that businesses need the incentive of a proper commercial rate of return in order to drive through a lot of innovative behaviour.
Of course innovative behaviour can go too far - we may well be witnessing just the start of the negative fallout from a decade or more of incredibly complex innovation in financial products such as collaterised debt obligations and the like which is currently unsettling the world’s financial markets.
I showed three short video clips on aspects of innovation - all from the BBC news audio-visual library. Here are the links:
Aspects of dynamic efficiency
Face Book and the incentives for applications developers
China and innovation - a shift away from manufacturing to design
Japan – the smallest wearable TV set!
Print
Email
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 4,000 other Economics Teachers in the UK and around the world who receive the tutor2u Economics Resource Email newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops.
Recent Threads on the Economics Teacher Discussion Forums:
Posts in:
General Economics Teaching
Video Case-study - lunchtime prices slashed
Long Exam Example to Use for Revision Please?
Good hotel in London for school trip
Competitive Markets
Diminishing Returns
Complementary goods - HELP Please!
URgent Help Needed
Equilibrium concept
The price of life
Extended Project Qualification
Comments
In light of the special considerations associated with innovation, application of this framework is likely to be highly fact specific. A number of factors that can be taken into account under each of these five inquiries are discussed.
Posted by
grand canyon helicopter tours on 08/18 at 06:29 AM
Most Popular Topic Tags on the Economics Blog
recession,
demand,
economics,
price,
unemployment,
prices,
inflation,
investment,
costs,
profit,
downturn,
supply,
trade,
debt,
employment,
confidence,
euro,
gdp,
competition,
capacity,
risk,
production,
china,
oil,
incentives,
exports,
expectations,
housing,
pay,
manufacturing,
sterling,
food,
profits,
property,
mortgage,
tutor2u,
globalisation,
banks,
revision,
slowdown,
borrowing,
usa,
retailers,
emissions,
deflation,
airlines,
innovation,
dollar,
supermarkets,
entrepreneur,
efficiency,
monopsony,
elasticity,
aqa,
welfare,
consumption,
economist,
productivity,
keynes,
saving,
google,
opec,
wealth,
depression,
moodle,
depreciation,
jobs,
credit crunch,
competitiveness,
economic cycle,
cars,
tim harford,
externalities,
stocks,
infrastructure,
environmental,
strategy,
carbon,
vle,
monopoly,
subsidy,
evaluation,
management,
eu,
losses,
protectionism,
spare capacity,
inequality,
environment,
poverty,
bank of england,
budget deficit,
construction,
behavioural,
wages,
macroeconomics,
carbon trading,
steel,
commodities,
output gap,
skills,
japan,
oligopoly,
currencies,
imports,
bbc,
stagflation,
contestable,
cpi,
agflation,
farming,
newsnight,
choices,
regulation,
survey,
taxes,
government failure,
itunes,
minimum wage,
lse,
climate change,
paul mason,
population,
intervention,
keynes society,
aviation,
amazon,
fiscal stimulus,
single market,
pricing,
dan ariely,
nationalisation,
cartel,
pollution,
eton college,
interest rates,
shareholder,
london,
rationality,
redundancies,
market failure,
rpi,
mpc,
shipping,
behavioural economics,
germany,
robert peston,
india,
rsa,
reputation,
currency,
quantitative easing,
facebook,
income elasticity,
stakeholders,
current account,
brazil,
coffee,
savings,
microsoft,
monetary policy,
crowding out,
collapse,
barriers to entry,
multiplier effect,
economies of scale,
suppliers,
price discrimination,
uk economy,
development,
quiz,
apple,
surplus,
taxation,
tesco,
free,
scrappage,
labour market,
behaviour,
tragedy of the commons,
opportunity cost,
open source,
vat,
smoking,
cost of living,
poverty trap,
merger,
growth,
speculation,
edinburgh,
ownership,
discrimination,
northern rock,
global,
cost benefit analysis,
ireland,
oecd,
supply chain,
shareholders,
scarcity,
balance of payments,
petrol,
liquidity,
duopoly,
etonomics,
iphone,
starbucks,
trade deficit,
happiness,
budget,
human capital,
capital,
subsidies,
immigration,
eurozone,
takeover,
exploitation,
ecb,
paradox of thrift,
wiki,
advertising,
public sector,
labour force survey,
peter day,
utility,
wants,
brand,
tax,
poland,
iceland,
blog,
recovery,
foreign exchange,
european union,
indirect tax,
robert frank,
roger bootle,
ocr economics,
heathrow,
hbos,
hotels,
freight,
creative destruction,
federal reserve,
kaletsky,
price war,
information failure,
crude oil,
spain,
All tags
