chapter 3 - innovation

Question 1

competitive advantage

Answer 1

an edge over rivals

Question 2

government failure

Answer 2

an economic inefficiency caused by government intervention

Question 3

innovation

Answer 3

improving an existing idea

Question 4

invention

Answer 4

coming up with a new original idea

Question 5

market power

Answer 5

the ability of a company to set the price of its product profitability above the market rates without losing market share

Question 6

merit goods

Answer 6

a good that is underconsumed in a free market

Question 7

R and D investment

Answer 7

the stages of growth and decline a product experiences between being introduced to consumers and being discontinued

Question 8

3 purposes of R and D is to search for…

Answer 8

1. a new idea
2. the development of an existing one
3. a new of making or providing the products

Question 9

3 factors of the design mix

Answer 9

function, aesthetics and cost

Question 10

how can product innovation occur

Answer 10

1. automation
2. robotics
3. LEAN production techniques
4. total quality management
5. training for staff

Question 11

6 ways product innovation increases market power

Answer 11

1. create a unique selling point by differentiating then from rival products
2. increased brand loyalty
3. enable premium pricing and so increase revenue from firms
4. development of new products
5. creates new markets
6. May destroy existing markets

Question 12

2 ways process innovation increases market power

Answer 12

1. technological changes
2. improved quality and quantity of goods and services produced

Question 13

3 extension strategies

Answer 13

1. adapt existing product by altering design
2. develop new products
3. find new markets for existing products

Question 14

5 advantages of firms being efficient for the government

Answer 14

1. growth
2. employ staff
3. pay higher wages
4. pay taxes
5. buy resources from other firms

Question 15

3 problems of state funding for R and D

Answer 15

1. the opportunity cost to the government
2. firms could become inefficient if they rely on subsidies, since they have little incentive to lower their costs
3. could lead to government failure if inefficient industries are subsidised