What is creative destruction?
It is the process where new production replaces obsolete goods due to technical progress.
Who defined creative destruction as a process in capitalism?
Schumpeter defined creative destruction.
What does Schumpeter say about creative destruction in capitalism?
It is inherent and continuously renews the productive fabric by destroying old and creating new elements.
How does online commerce illustrate creative destruction?
It develops firms selling online and creates related activities like delivery and online advertising.
What is innovation according to Schumpeter?
The industrial or commercial application of an invention or technical progress within production.
How can innovation affect competition and market share?
It can reduce competition and increase market share by changing product production or presentation.
What economic process does innovation initiate?
Creative destruction by replacing productive fabric and creating new economic activities.
What are the four types of innovation identified by Schumpeter?
Product, process, organisational, and market innovation.
Which author identified four types of innovation including product and market innovation?
Schumpeter.
What type of innovation does the digital camera illustrate?
Product innovation.
What activities did the digital camera destroy?
Film cameras, photographic film, and in-store photo printing.
What new activities did the digital camera create?
Digital cameras, memory cards, accessories, and photo-editing software.
What does technical progress mean in the narrow sense?
Innovations in products or production.
What does technical progress include in the broad sense?
Anything that increases productivity of production factors.
What is the growth mechanism sequence in the course?
Innovation leads to technical progress, then productivity, then economic growth.
How does Schumpeter treat technical progress in his growth analysis?
As a residual or exogenous element without explaining its origin.
Which author analyzed growth treating technical progress as exogenous?
Schumpeter.
What are identified as sources of technical progress in the course?
Natural factors, factors of production, machines, raw materials and energy sources, and firm organisation changes.
Which elements can technical progress affect?
Factors of production, machines, new technologies, and labour qualification.
What correlation does the course observe involving technical progress?
A positive correlation between technical progress, productivity growth, and economic growth.
What does productivity measure in production?
The efficiency of the productive combination relating production to factors used.
How is productivity calculated?
As production divided by the quantity of factors used.
What happens to labour productivity if production rises from 100 to 120 units with labour fixed at 10?
Labour productivity rises from 10 to 12 units per labour unit.
What is total factor productivity?
The increase in production not explained by increased factors of production.
How can productivity gains increase consumption?
Through higher labour income.
How can productivity gains increase profits?
By lowering wages relative to output.
How do productivity gains increase investment?
Through higher profits.
Why can productivity gains create economic activity?
Because increased purchasing power and investment support demand for new goods and services.
Test your knowledge with 15 questions on Innovation and Creative Destruction.
1. What does Schumpeter mean by creative destruction?
2. Why does Schumpeter consider creative destruction inherent to capitalism?
Review the complete course in the study sheet for Innovation and Creative Destruction.
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