Technological Change (AQA A Level Economics)

• 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 

• 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
New methods	Technology has changed the way businesses process or manufacture products. This increases speed of production The use of machines and robotics in car assembly has replaced manual labour 3D Printers have revolutionised many industries. It is now possible to print both food and houses!
Productivity	Firms experience increased productivity  as technologies have the capacity to increase output per unit. This increases marginal revenue and as a result, it maximises profit Amazon uses automated warehouse systems to fill orders, which enables greater output per unit of input
Efficiency	Technologies have created efficiency gains for businesses Automated processes reduce waste and allocate resources in most optimal way The adoption of self-checkout systems in supermarkets has led to faster checkout times and increased efficiency
Costs	The use of technology has lowered the cost of production as firms benefit from  economies of scale more easily Automated car assembly lines have increased mass production and reduced production costs per unit

• 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

Businesses gain a competitive edge by using technology to create new products and update features to adapt to evolving consumer needs Technology enables the design and development of prototypes and final products  E.g Recent advancements in AI have led to the development of smart speakers such as Google Home. They understands voice commands and perform tasks such as playing music, setting reminders, and controlling smart home devices

The emergence of smartphones and social media platforms allows businesses to reach new markets through mobile apps and digital marketing E.g Uber and uber eats use smart phone and apps to change access to transportation and food delivery, reshaping consumer behaviour

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 

• 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