chapter 13 notes - Technology R&D and Efficiency CHAPTER...

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Technology, R&D, and Efficiency CHAPTER THIRTEEN TECHNOLOGY, R&D, AND EFFICIENCY LECTURE NOTES I. Technological Advance: Invention, innovation, and diffusion. A. In the short run it is assumed that technology, plant, and equipment are constant. In the long run, the size of the plant can change and firms can enter or leave the industry; in the very long run, technological advances can occur. B. Technological advance is a three-step process that shifts the economy’s production possibilities curve outward, enabling more production of goods and services. 1. The most basic element of technological advance is invention: The discovery of a product or process and the proof that it will work. 2. Innovation is the first successful commercial introduction of a new product, the first use of a new production, or the creation of a new form of business enterprise. 3. Diffusion is the spread of innovation through imitation or copying. C. Expenditures on research and development include direct efforts by business toward invention, innovation, and diffusion. Government also engages in R&D, particularly for national defense. 1. In 2002 total U.S. R&D expenditures (business plus government) were $292 billion, 2.79 percent of U.S. GDP. (See Global Perspective 13-1 for comparison.) 2. American business spent $211 billion on R&D in 2002. (See Figure 13-1 for breakdown into categories.) D. The modern view of technological advance. 1. For decades economists treated technological advances as an element largely external to the market system — a random outside force to which the economy adjusted. 2. Contemporary economists see capitalism itself as the driving force of technological advance, providing the incentives and motives for firms and individuals to seek profitable opportunities. II. The role of entrepreneurs and other innovators. A. The entrepreneur is an initiator, innovator, and risk bearer—the catalyst who uses resources in new and unique ways to produce new and unique goods and services. B. Other innovators, who do not bear personal financial risk, include key executives, scientists, and others engaged in commercial R&D activities. C. Often entrepreneurs form new companies called “start-ups”, i.e., firms that focus on creating and introducing new products or employing a specific new production or distribution technique. D. Innovators are also found within existing corporations supported by working conditions and pay incentives that foster creative thinking. Some firms have chosen to “spin off” the R&D function into new, more flexible and innovative companies.
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