4.1.4.8 Technological change Quiz: AQA Economics, Unit 1

The 20 questions

1. The difference between invention and innovation is that innovation is:

   • The first creation of a new idea, which is then licensed to firms that wish to use it in their own production processes and sales
   • A government-funded research programme with no commercial aim, designed to produce knowledge that is published freely for anyone to use
   • The same as invention, but applying only to service industries where new ideas cannot easily be turned into products that customers
   • The commercial application of a new idea or invention in the market

2. Technological change can affect a firm's costs of production mainly by:

   • Changing methods of production and raising productivity, which can lower average costs
   • Guaranteeing that all firms in the industry earn abnormal profit
   • Making the price elasticity of demand equal to zero for every product, so that consumers cannot respond to any change in price at all
   • Permanently increasing fixed costs for all firms in the industry

3. Creative destruction refers to:

   • Government regulation that closes down inefficient industries by withdrawing their licences
   • The process by which new products and methods replace existing ones, destroying some existing markets
   • The deliberate destruction of rival firms' capital by a monopolist that wants to remove competitors entirely
   • A fall in demand for a product after a fall in consumer incomes

4. Technological change can influence market structure by:

   • Creating economies of scale that may favour larger firms and raise barriers to entry
   • Always increasing the number of firms in every market
   • Removing the need for any firm to invest in research
   • Making all markets perfectly competitive over time

5. A new machine lowers a firm's average cost per unit from £8 to £6. This means:

   • Total output falls because productivity per worker has declined, so the firm must cut production to reduce its losses in the period
   • Cost of production is lower for each unit, improving the firm's efficiency
   • Average cost rises because new machines always have higher unit costs than the older equipment they replace in the factory
   • Marginal revenue must fall by the same 2 pounds as average cost

6. A firm's labour productivity rises from 40 to 50 units per worker per day with no change in wages. Unit labour cost falls by:

   • 10%
   • 50%
   • 20%
   • 25%

7. Which is an example of technological change creating a new market?

   • A government subsidy to a declining industry that keeps older firms in business for longer than the market would otherwise allow
   • A rise in the minimum wage increasing unemployment among young workers in the retail and hospitality sectors of the economy
   • Smartphones creating a market for mobile applications
   • A fall in the price of coal reducing demand for gas, as households switch heating fuel after a sharp drop in the price of coal

8. Which best illustrates technological change influencing methods of production?

   • A car plant replacing manual welding with robots to increase output per worker
   • A bank cutting staff because of a recession in the economy, reducing its branch network in several regional towns at the same time
   • A cafe increasing its menu prices after a rise in rent, passing on the higher cost of its premises to customers in full
   • A shop reducing its opening hours to save on electricity costs during the winter months when footfall is low across the whole week

9. Technological change raises output per hour from 200 to 260 units. The percentage increase in productivity is:

   • 30%
   • 130%
   • 23%
   • 60%

10. Why might a firm delay adopting a new technology even when it lowers costs?

    • Adopting technology raises the price elasticity of demand to infinity
    • Installation costs and sunk investment may outweigh short-run savings, especially if demand is uncertain
    • Technology always increases fixed costs without any benefit
    • Consumers prohibit firms from using newer methods of production

11. Process innovation is best described as:

    • A new product launched to meet a new consumer need, which changes what the firm sells rather than the way in which it makes its goods
    • A change in the brand name of an existing product, made to refresh the image of goods that are already on sale in the same shops
    • A reduction in the number of workers employed by a firm, made to cut costs after a fall in demand for the products it makes and sells
    • A change in how goods are produced, such as new machinery or methods

12. Product innovation is:

    • A cut in the price of a product that is already sold
    • The merger of two firms that operate in the same industry, which combines their capital and reduces the number of rivals in the market
    • The introduction of a new or improved good or service that consumers can buy
    • Investment in machinery that increases output per worker, so that each employee produces more units in the same amount of time

13. A new technology raises fixed costs from £100,000 to £160,000 but cuts variable cost per unit from £4 to £2. Total costs are equal at an output of:

    • 60,000 units
    • 30,000 units
    • 40,000 units
    • 15,000 units

14. A new technology raises fixed costs from £100,000 to £160,000 but cuts variable cost per unit from £4 to £2. The new technology has lower total cost at outputs:

    • No output level at all
    • Outputs above 30,000 units
    • Outputs below 30,000 units
    • Outputs above 60,000 units only

15. Which statement best evaluates the claim that technological change always benefits consumers?

    • It always benefits consumers because it lowers prices in every market
    • It only benefits firms because consumers cannot buy the new products, which are sold only to businesses and never to households at all
    • It never benefits consumers because all new technology raises prices
    • It can lower prices and improve products, but may cause job losses, so the net effect depends on how the gains are shared

16. Technological change can lead to the development of new markets. Which is an example?

    • A fall in the price of sugar reducing spending on sweets, as households used the saving to buy other goods they had not bought before
    • The decline of the typewriter market as computers spread, which left many former typewriter makers without any customers at all
    • The growth of electric vehicles creating a new market for charging networks
    • Higher taxation on tobacco reducing demand for cigarettes, which in turn lowered the profits of retailers across the high street

17. A firm saves £0.50 per unit on 40,000 units because of new technology. Its total saving is:

    • £20,000
    • £80,000
    • £2,000
    • £200,000

18. A monopolist patents a new production process. What is the most likely effect on barriers to entry?

    • Patents have no effect on the number of firms in the market
    • Patents remove all barriers to entry
    • Patents make the market perfectly contestable immediately
    • Patents may raise barriers to entry, protecting the firm's monopoly power for a time

19. Technology raises productivity without raising wages. The likely effect on unit labour costs is:

    • Higher demand for labour in every case, because productivity gains always mean that firms need more workers to produce each extra unit
    • Lower unit labour costs, which may increase profit margins
    • No change in unit labour costs
    • Higher unit labour costs for the same output, since the productivity gains are offset by the higher wages that the workers then receive

20. Which is the best reason that technological change may reduce employment in some occupations?

    • Technology always raises wages above the marginal product of labour
    • Machines can substitute for labour, reducing the number of workers needed for the same output
    • Technological change makes the supply of labour perfectly elastic, so the number of workers in each occupation falls to zero over time
    • Technology reduces productivity

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