4.1.4.8 Technological Change (AQA Economics)

This study note for AQA Economics covers Technological Change.

Invention:

1. Definition:
   • Invention refers to the creation of a new product or process that has not existed before. It involves the discovery of something entirely novel.
2. Characteristics:
   • Often involves a breakthrough idea or discovery.
   • Focuses on the creation of a prototype or concept.
3. Example:
   • The invention of the light bulb by Thomas Edison revolutionized lighting, providing a new and efficient way to illuminate spaces.

Innovation:

1. Definition:
   • Innovation is the application of inventions to create a new product, service, or process that adds value. It involves the implementation and improvement of existing ideas.
2. Characteristics:
   • Involves the practical application of creative ideas.
   • Emphasizes the commercialization and improvement of existing inventions.
3. Example:
   • Apple's innovation in smartphones with the iPhone transformed the mobile phone market by integrating multiple functions into a single device.

Relationship:

• Key Point:
  • While invention is about creating something new, innovation is about making that creation useful and marketable.
• Example:
  • The invention of the internet (ARPANET) laid the groundwork for innovation, leading to the creation of the World Wide Web, email systems, and online platforms.

Topic: Technological Change in Production

Effects on Methods of Production:

1. Automation:
   • Technological advancements, such as robotics, have automated various production processes.
   • Example: Car manufacturers use robots for tasks like welding and assembly, improving precision and efficiency.
2. Digitalization:
   • Adoption of digital technologies streamlines production through data analysis and real-time monitoring.
   • Example: Smart factories utilize IoT devices to optimize production schedules and detect faults early.

Effects on Productivity and Efficiency:

1. Increased Productivity:
   • Advanced technologies often lead to higher output per unit of input.
   • Example: Introduction of computer-aided design (CAD) software has significantly increased the productivity of architects and engineers.
2. Efficiency Gains:
   • Improved technologies reduce waste and resource usage.
   • Example: Precision farming technologies enhance crop yields by optimizing resource allocation and reducing environmental impact.

Effects on Costs of Production:

1. Economies of Scale:
   • Enhanced production efficiency can result in economies of scale, lowering average costs.
   • Example: Mass production in the automotive industry reduces the cost per unit of each car.

Topic: Impact on Product Development and Markets

Development of New Products:

1. R&D Investments:
   • Companies invest in research and development to create innovative products.
   • Example: Pharmaceutical companies invest in developing new drugs to address unmet medical needs.

Development of New Markets:

1. Market Expansion:
   • Technological advancements enable businesses to enter new markets.
   • Example: E-commerce platforms expanded market reach, allowing small businesses to sell globally.
2. Emergence of New Industries:
   • New technologies can give rise to entirely new industries.
   • Example: The rise of electric vehicles created a new market for EV manufacturers, charging infrastructure, and related technologies.

Destruction of Existing Markets:

1. Creative Destruction:
   • Innovation may render existing products or industries obsolete.
   • Example: The advent of digital photography disrupted the traditional film camera industry.

Topic: Influence on Market Structure

Impact on Market Structure:

1. Disruption of Traditional Markets:
   • Innovative technologies can disrupt established market structures.
   • Example: Streaming services disrupted the traditional cable TV market.
2. Creation of Oligopolies:
   • Certain technologies may lead to the dominance of a few large firms.
   • Example: The smartphone market is dominated by a small number of major players.

Introduction of New Market Structures:

1. Platform Markets:
   • Technology facilitates the rise of platform-based markets.
   • Example: App stores and social media platforms create ecosystems for developers and users.
2. Globalization:
   • Technology enables companies to operate on a global scale, impacting market dynamics.
   • Example: E-commerce platforms connect buyers and sellers globally, reshaping traditional retail markets.

Glossary of Key Terms:

1. Invention: The creation of a new product or process.
2. Innovation: The application of inventions to create a new product, service, or process that adds value.
3. Automation: The use of technology to perform tasks without human intervention.
4. Economies of Scale: Cost advantages gained through increased production levels.
5. R&D (Research and Development): The process of investing time and resources in the creation and improvement of products and processes.
6. Creative Destruction: The process by which new innovations replace or render existing products or industries obsolete.
7. Oligopoly: A market structure characterized by a small number of large firms dominating the industry.
8. Platform Markets: Markets that operate on digital platforms, connecting producers and consumers.
9. Globalization: The process of businesses and other organizations developing international influence or start operating on an international scale.