Technological Change (AQA A Level Economics)
Revision Note
Written by: Lorraine
Reviewed by: Steve Vorster
The Distinction Between Invention & Innovation
New business ideas can come about through original ideas or by adapting existing products, services, or ideas
Invention refers to the creation of entirely new products and processes that did not exist before.
E.g The printing press was invented in 15th century and led to the mass production of books
Innovation refers to the development of existing products, designs or ideas to improve them or introduce new features
E.g The printing press evolved to become more efficient with steam-powered presses and later digital printing technology
Technological Change in Production
Advances in technology can create new opportunities to improve methods of production, productivity, and efficiency.
These factors all have the potential to decrease a firm's costs of production
Advantages of Technological Change on Production
Advantage | Explanation |
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New methods |
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Productivity |
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Efficiency |
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Costs |
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Technological Change Creates New Products & Markets
The rapid evolution of technology has prompted industries to come up with new ideas, products and features to gain consumers and access new markets
Consumer tastes and preferences are also increasingly being influenced by what new technology offers
Businesses then need to continuously adapt products and processes to meet the changing environment
If they do not adapt, it can mean the loss of some businesses or even whole industries
E.g There was a fall in demand for traditional DSLR cameras or vinyl records as consumers preferences were for more modern alternatives. However, these industries have actually experienced a recent resurgence as consumer have begun to appreciate the artistic value of these goods
The Impact of Technological Change on Existing Markets and in Creating new Markets
Existing markets | New markets |
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Creative Destruction & Technological Change
Creative destruction is closely linked to technological change
Technology has led to the decline of traditional industries, as innovative products and processes emerge and new industries replace old ones
Technology create opportunities for new business processes, goods and services and may eliminate existing ones
E.g The rise of online streaming platforms (Netflix, Prime, etc) has replaced the less convenient traditional video rental shops. In the past, people used to physically rent videos from a video store, such as Blockbuster. With the introduction of streaming services, consumers now have instant access to movies from their own homes
How Does Technological Change Influence Market Structure?
Technological change has the ability to change some of the characteristics traditionally found in certain market structures
Diagram: How Technology Influences Market Structures
Technology can lower barriers to entry and increase the level of competition in an industry
Technology can reduce barriers to entry
Small businesses may be able to enter markets that are normally dominated by larger firms
E.g. A jewellery maker can set up shop on Etsy and showcase their designs to a large market
Technology can reduce information asymmetry
Web technologies can harness, analyse, interpret and present large amounts of information quickly
Information on pricing and products is much more easily available
E.g Skyscanner, Google Shopping, and PriceRunner allow consumers to compare prices and see reviews
Technology can increase competition
As more firms can access e-commerce platforms, digital marketing, and online marketplaces, which increases access to larger markets
E.g Airbnb's online marketplace connects local hosts with customers from around the world
Technology can increase market power
This can result in the formation of more oligopolies or monopolies
E.g Technology giants Google and Amazon have gained significant dominance due to factors such as brand loyalty and economies of scale, making it difficult for smaller competitors to enter the market
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