Chapter 12 notes

Chapter 12 notes - Technology, R&D, and Efficiency...

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CHAPTER TWELVE LECTURE NOTES I. Learning objectives – In this chapter students will learn: A. The differences between an invention, an innovation, and technological diffusion. B. How entrepreneurs and other innovators further technological advance. C. D. Why firms can benefit from their innovation even though rivals have an incentive to imitate it. E. About the role of market structure in promoting technological advance. F. How technological advance enhances productive and allocative efficiency. II. 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 2004 total U.S. R&D expenditures (business plus government) were $312 billion, 2.66 percent of U.S. GDP. (See Global Perspective 24.1 for comparison.) 2. American business spent $200 billion on R&D in 2004. (See Figure 24.1 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. III. 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. 109
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This note was uploaded on 12/07/2009 for the course ECON 203 at USC.

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Chapter 12 notes - Technology, R&D, and Efficiency...

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