4.8

• What is technological change?

  The improvement in methods of production, often through innovation, invention, or automation, that lead to higher productivity, lower costs, or better products
• What is technical progress?

  Refers to improvements in how inputs are turned into outputs i.e better production techniques. Usually means:

  • using less input for the same output
  • Or getting more output from the same input
• invention definition

  making something entirely new; something that did not exist before at all
• innovation defintion

  improves on or makes a significant contribution to something that has already been invented, thereby turning the results of invention into a product
• what are the types of technological change?

  • product innovation - new/improved products (e.g iPhones, electric cars)
  • process innovation - better ways to produce (e.g robots in factories)
  • managerial innovation - smarter ways to organise labour or capital
• how does technological change affect the LRAC curve?

  shifts the long-run average cost curve downwards, enabling lower costs at all output levels - firms can achieve new economies of scale
• the effects of technological change on:

  • methods of production
  • Productivity
  • Efficiency
  • Costs of production
• how does technological change affect methods of production?

  introduces new or improved processes, such as:

  • automation and robotics
  • AI and smart software
  • lean production techniques
• examples of a new method of production due ot technological change?

  self-checkout machines in retail stores or just-in time inventory systems in manufacturing - reducing delays and storage costs
• how does technological change affect labour productivity?

  it usually increases labour productivity by:

  • reducing time per unit
  • minimising errors
  • letting workers do more skilled tasks while machines handle the repetitive ones
• how does technological change affect capital productivty?

  allows machines to produce more output per hour or use fewer inputs - meaning better capital utilisation
• how does technological change affect productivity efficiency?

  can increase productive efficiency by allowing firms to produce at a lower cost and closer to the lowest point on the average cost curve
• how does technological change improve dynamic efficiency?

  firms reinvest profits in new technology, which leads to long-term improvements in innovation, quality, and cost reduction
• how does technological change affect costs of production?

  tech reduces average and marginal costs by:

  • lowering labour costs
  • cutting waste and downtime
  • increasing economies of scale
• what’s an example of tech reducing costs of production?

  Amazon used advanced warehouse automation and algorithms to reduce staffing and delivery times = lower costs
• can technological changer ever increase costs of production in the short run?

  yes - firms may face high upfront costs for buying/installing new technology, staff training or temporary disruptions
• productive efficiency definition

  for the economy as a whole occurs when its impossible to produce more of one good without producing less of another. for a firm is occurs when the average total cost of production is minimised
• dynamic efficiency definition

  measures improvements in productive efficiency that occur in the long run over time
• creative destruction definition

  capitalism evolving and renewing itself overtime through new technologies and innovations replacing older technologies and innovations
• what is creative destruction?

  when innovation makes old industries or firms obsolete, leading to job losses of business closures - but also new growth
• how does technological changer affect Labour markets ?

  • creates jobs in tech sectors
  • destroys jobs in outdated sectors
  • required retraining and upskilling
• how does tech change affect market structure ?

  • can reduce barriers (e.g selling online = no rent)
  • can increase barriers (e.g patents or costly R&D)
  • May increase concentration if only large firms can afford new tech
• how does technological changer affect affect consumer welfare?

  improves consumes welfare through:

  • lower prices
  • more choice
  • better quality products
• how does technological change drive dynamic efficiency?

  firms use profits to invest in new tech = long-term improvements in:

  • cost efficiency
  • innovation
  • customer satisfaction
• what does do R&D and investment play in tech change?

  firms invest in R&D to:

  • innovate new products
  • improve processes
  • gain competitive advantage
• what government polices support tech change?

  • tax credits for R&D
  • subsidies for innovation
  • education and training
  • IP protection (patents)