TECHNOLOGICAL CHANGE
Technological change – improving existing technology and the creation of completely new
technology via invention and innovation in order to improve the production process or existing
products, and create new products.
This leads to changes in market structures, the destruction of markets, and the creation of new
markets in the economy.
Invention – making discoveries and advancements in pure science
Innovation – using invention and new discoveries in production
Invention and innovation can lead to:
• improvements in capital equipment (e.g. factories, roads), leading to improvements in the
quality of goods produced,
• barriers to entry being reduced or increased — for example, cheaper production methods
may reduce barriers to entry into a market, but increases in the levels of capital required to
produce the latest products may increase barriers to entry,
• a level of monopoly power for the first firm which utilises the new invention or innovation,
• improvements in labour productivity and efficiency, e.g. due to more effective machinery,
• larger economies of scale
Consequences of technological change:
• Methods of production
Methods of production change as technology improves. Firms capable of invention and
innovation can use the new technology in the production process. EG. Change from
mechanisation (labour operates machinery) to automation (machinery operates machinery)
in production process.
• Productivity
Technological change generally improves labour productivity, as workers are able to
produce more with the help of specialist and improved capital.
BUT, automation of very expensive computers in NHS have failed to work often, and in
extreme instances have been scrapped.
• Efficiency
Technological change enables costs of production to be reduces, so productive efficiency
improves. This static efficiency can help lower costs in the short run meaning more profit can
be spent on research and development, or investment in better capital. This would lead to
dynamic efficiency in the long run.
• Costs of production
By technological change improving productivity and efficiency, costs of production to firms
are often lowered as well, especially in the long run.
A disruptive innovation is one that helps to create new markets, but in doing so disrupts an existing
market and replaces old technology.
Technological change – improving existing technology and the creation of completely new
technology via invention and innovation in order to improve the production process or existing
products, and create new products.
This leads to changes in market structures, the destruction of markets, and the creation of new
markets in the economy.
Invention – making discoveries and advancements in pure science
Innovation – using invention and new discoveries in production
Invention and innovation can lead to:
• improvements in capital equipment (e.g. factories, roads), leading to improvements in the
quality of goods produced,
• barriers to entry being reduced or increased — for example, cheaper production methods
may reduce barriers to entry into a market, but increases in the levels of capital required to
produce the latest products may increase barriers to entry,
• a level of monopoly power for the first firm which utilises the new invention or innovation,
• improvements in labour productivity and efficiency, e.g. due to more effective machinery,
• larger economies of scale
Consequences of technological change:
• Methods of production
Methods of production change as technology improves. Firms capable of invention and
innovation can use the new technology in the production process. EG. Change from
mechanisation (labour operates machinery) to automation (machinery operates machinery)
in production process.
• Productivity
Technological change generally improves labour productivity, as workers are able to
produce more with the help of specialist and improved capital.
BUT, automation of very expensive computers in NHS have failed to work often, and in
extreme instances have been scrapped.
• Efficiency
Technological change enables costs of production to be reduces, so productive efficiency
improves. This static efficiency can help lower costs in the short run meaning more profit can
be spent on research and development, or investment in better capital. This would lead to
dynamic efficiency in the long run.
• Costs of production
By technological change improving productivity and efficiency, costs of production to firms
are often lowered as well, especially in the long run.
A disruptive innovation is one that helps to create new markets, but in doing so disrupts an existing
market and replaces old technology.
