Technological Change Technological change (TC) is a term that is used to describe the overall process of invention, innovation and diffusion of technology or processes

3 Key Components of technological Change 1.More outputs can be produced with the same inputs (increased productivity) 2.Existing outputs undergo an improvement in quality. 3.Completely new goods or services become available. Technology increases labour productivity, LRAS shifts to the right, long term growth increases. Real national output increases. Standard of living increases

Invention Vs Innovation Invention – coming up with a completely new idea or concept that can be patented. Innovation – the putting of an invention into commercial use, the process of converting knowledge and ideas into better ways of doing business or into new or improved products.

Sustaining Innovation They make existing products better, faster or cheaper in the eyes of the customer by offering new features and functions E.g. iphone 4 and iphone 4s HD TV’S and 3D TV’s

Disruptive Innovation An innovation that helps create a new market and eventuallyinnovationmarket goes on to disrupt an existing market. A disruptive innovation improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in the new market and later By lowering prices in the existing market. Emergence of the low-cost airlines following a radically different business model – this has had a huge effect on national scheduled airline carriers such as British Airways The expansion of the internet and e-commerce challenging the economics and the business models of existing bricks and mortar retailers who have limited shelf space. Consider the impact of online music download businesses such as iTunes and peer to peer file sharing. This is having a huge effect on the online and traditional music industry. iTunesonline and traditional music industry Voice over Internet Protocol VoIP such as Skype versus traditional telephone and mobile phone service providers.Skype

See omics/comments/smartphones-and-creative- destruction#extended omics/comments/smartphones-and-creative- destruction#extended

Process Innovation A change in the way a product is manufactured, created, or distributed. New technology my involve the use of computers, robots, microelectronics, welding technology etc/ fs/Small%20firms/SF3.pdf fs/Small%20firms/SF3.pdf

Impact of Technology on Firms’ Cost of Production Consumers also stand to gain from such innovation in that they should be able to expect lower prices. This increases their real incomes, allows for a higher level of consumer surplus and means that there is less pressure for increases in wages in order to boost real living standards.

Gains in Dynamic efficiency Dynamic efficiency occurs over time. It focuses on changes in the consumer choice available in a market together with the quality/performance of goods and services that we buy. Innovation can stimulate improvements in dynamic efficiency in the long-term, always providing that the innovations that come to market are appropriate in satisfying our changing needs and wants.

Innovation – Barrier to entry?? Innovative behaviour can be an important barrier to entry in markets. Firstly because some the property rights embedded in product innovations might be protected by patent laws. There is nearly always a “first mover advantage” for successful innovators that gives them scope to exploit some monopoly power in a market. Set against this argument is that view that high rates of product and process innovation actually have the effect of reducing barriers to entry because they can strike right at the heart of the existing market power enjoyed by well-established businesses.