Deck 16: The Market's Prime Achievement: Innovation and Growth

Question 1

The Industrial Revolution refers to the period 1950-1970, which was characterized by rapid manufacturing sector growth in the United States.

Answer 1

False

Question 2

It required less labor time to buy a college education in 1995 than it did in 1965.

Answer 2

False

Question 3

Innovation refers to the introduction of new products and processes into the market.

Answer 3

True

Question 4

The Industrial Revolution refers to the stream of new technology and the resulting growth of output than began in England toward the end of the eighteenth century.

Question 5

Labor productivity refers to the total amount of output a worker produces in some period of time (an hour, a week, a month, a year).

Question 6

The "new economy" refers to a world in which computer use is widespread, information is quickly transmitted, and technical change is rapid.

Question 7

Invention alone does not explain why free market societies have experienced such rapid rates of economic growth.

Question 8

More goods are available to the average American today than two hundred years ago, but today an American has to work more hours to earn the money to purchase most items.

Question 9

Capitalism is an economic system in which the production process is controlled primarily by private firms operating in markets.

Question 10

The process by which new product or production methods are introduced is called the Industrial Revolution.

Question 11

The more money firms spend on R&D the faster the economy is expected to grow.

Question 12

During the twentieth century, the real income of the average American grew by a factor of more than seven.

Question 13

Capitalism is an economic system in which there is public ownership of the means of production and resource allocation is determined through markets.

Question 14

Average growth rates of per capita income were close to zero, on average, prior to the Industrial Revolution.

Question 15

The proliferation of new products that we are used to today has been occurring since the advent of the Industrial Revolution.

Question 16

Research and development refers to the activity of firms, universities, and government agencies that seek to invent new products and processes.

Question 17

One of the great strengths of the market system is the way it acts as an engine of economic growth and innovation.

Question 18

A firm will generally believe that if it increases its spending on R&D its competitors will not follow, but if it decreases its spending they will follow.

Question 19

A firm will tend to follow competitors when they increase spending on R&D, but will not follow them when they decrease such spending.

Question 20

Rising labor productivity means that less labor is needed to produce the same level of output.

Question 21

Most innovations come from just a few large industries.

Question 22

If the marginal revenue from R&D is greater than the marginal cost, a profit maximizing firm will spend less on R&D.

Question 23

Many innovations with benefits that excess costs are never carried out.

Question 24

A firm will equate the marginal cost of research and development with the marginal revenue it generates, to determine how much money it will allocate to research and development.

Question 25

Firms that set prices equal to marginal costs will usually recover all of their R&D costs.

Question 26

One of the reasons for the growth performance of free market economies is firms' use of innovation to compete with one another.

Question 27

A profit maximizing firm will continue to spend on R&D until the point where the marginal revenue from R&D is equal to its marginal cost.

Question 28

It is probable that innovators, on average, earn zero profits or lose money.

Question 29

Spending on R&D among a group of firms is equally likely to increase or to decrease.

Question 30

Globalization was much more pervasive in the 1800s than it is today.

Question 31

A firm will decide how much to spend on research and development in the same way that it decides how much output to produce: by equating marginal cost and marginal revenue.

Question 32

Price competition among firms has proved to be more important than the introduction of new products.

Question 33

Innovation benefits the innovator to some extent but in excess of 90% of the benefits go to others.

Question 34

The story of innovation battles among firms is analogous to the story of armaments races among countries.

Question 35

Innovation tends to be an extremely competitive activity that allows few opportunities for firms to share information with one another.

Question 36

Collaborative research is especially important in high-technology sectors because a single firm might not have the resources to develop a significant innovation.

Question 37

The existence of innovators like Bill Gates proves that innovators on average earn positive economic profits.

Question 38

Innovative firms face competition much more quickly than they did one hundred years ago.

Question 39

Profit-maximizing firms will earn zero marginal profit on innovation.

Question 40

Firms operating in competitive markets have little choice but to innovate.

Question 41

In a perfectly competitive industry, firms will earn zero economic profits from innovation.

Question 42

The computer industry is an example of an industry with innovative activity characterized by zero economic profit.

Question 43

In 2008, spending on research and innovation represented approximately 2.8 percent of total GDP.

Question 44

Given the severe externality problems associated with basic research, governments rather than private firms tend to finance such research.

Question 45

Technology trading represents an attempt by firms to share the risks associated with innovation.

Question 46

The unprecedented increase in living standards in the industrialized countries over the last two centuries is the result of

A) growth in productivity of land.
B) growth in labor productivity.
C) growth in output.
D) population growth.
E) growth in government spending.

Question 47

Patents are granted to provide incentives for private firms to innovate.

Question 48

Technology trading is an arrangement where firms are forced to provide their technology to other firms.

Question 49

The presence of externalities in the acquisition of new technical knowledge means that the free market will tend to devote too many resources to this activity.

Question 50

Since some innovations succeed, while others fail, it is reasonable to assume that industries with innovative activity may still be characterized by zero economic profit.

Question 51

A rationale for government financing of innovation and research activities is that private firms will not have an incentive to provide the socially optimal amount of these activities.

Question 52

Patents are granted as a way of providing incentives for private firms to innovate, in recognition of the enormous social benefits generated from innovation.

Question 53

An important factor contributing to the low average profits from innovation is the inherent riskiness of the activities.

Question 54

The computer industry is an example of an industry in which firms rely more heavily on product innovation than on price competition to gain an advantage in the market.

Question 55

The externality problem tends to be more severe for applied research than for basic research.

Question 56

The presence of barriers to entry in innovation will ensure that profits from innovation are driven to zero.

Question 57

Economists believe that the free market will tend to under-provide resources for acquisition of new technical knowledge.

Question 58

Innovations are thought to generate positive externalities.

Question 59

The prime engine of growth in market economies is

A) government spending.
B) consumer spending.
C) innovation.
D) private saving.
E) public saving.

Question 60

Spending on innovation will tend to be represented by a kinked marginal revenue curve.

Question 61

In their effort to contain the risks inherent in the innovation process, large business firms have tended to slant their efforts toward

A) revolutionary breakthroughs.
B) disruptive innovations.
C) small incremental improvements.
D) maintaining status quo.

Question 62

All of the following are features of innovation that magnify its contribution to GDP growth, except

A) that many innovations create cumulative changes.
B) the benefits of innovation are captured entirely by the individual/firm funding the innovation.
C) that innovation has a public goods property.
D) innovations act like an accelerator.

Question 63

As of 2009, the income of the average American was about ____ times larger than in 1900.

A) 2.0
B) 7.5
C) 22.5
D) 45.3
E) 46.4

Question 64

Which of the following is considered a key economic influence on the capacity of market economies to promote unprecedented growth?

A) political changes
B) religious beliefs
C) historical accidents
D) free competition
E) cultural factors

Question 65

Which of the following can be said about the average growth rates of per capita income about the entire 1,500 years before the industrial revolution?

A) Hovered around three percent.
B) Approximated zero percent.
C) Mostly above four percent.
D) Extremely negative.

Question 66

According to Joseph Schumpeter, the monopoly profit earned by an innovative entrepreneur will eventually be reduced to zero.Why?

A) Because of government regulations.
B) Because of systemic inefficiencies creeps in later.
C) Because of the loose association between innovative entrepreneurship and growth.
D) Because of entry by imitators.

Question 67

Why do firms spend money on costly innovation?

A) Competitive markets leave firms no choice but to innovate.
B) Innovation is a low-risk activity.
C) Innovation always results in higher profits for firms.
D) Innovation is usually profitable because the majority of innovations reach the market place.
E) Because innovation is beneficial for society and firms are motivated to act in ways that are beneficial for society.

Question 68

Schumpeter's model argues that the successful innovative entrepreneur's reward is

A) zero economic profit.
B) perfect competition.
C) a monopoly profit.
D) economies of scope.

Question 69

In many high-tech industries in the economy, such as computers, medical equipment, and automobiles

A) price competition is utilized by firms more than innovation to compete with rivals.
B) firms compete on the basis of innovation only; never engaging in price competition.
C) innovation is utilized by firms to compete with rivals more than price competition.
D) firms use price competition only; never engaging in innovation to compete with rivals.
E) firms utilize innovation and price competition equally to compete with rivals.

Question 70

Firms share technology with rivals,

A) in order to better compete with their rivals.
B) in order to help out when their rivals are in trouble.
C) to share the substantial risks of innovation.
D) because they are required to by law.
E) in order to pass false information to their rivals in order to drive them out of business.

Question 71

Capitalism is a market economic system with

A) most production processes controlled by the government.
B) most production processes controlled by private firms with minimal government control.
C) all production processes controlled by private firms.
D) all production processes controlled by the government.
E) most production processes controlled by the government, with some control by private firms.

Question 72

Which of the following is true?

A) A steady flow of innovation means that GDP remains constant.
B) A steady flow of innovation is not enough to keep GDP constant.
C) An increasing flow of innovation is necessary for GDP to grow.
D) An increasing flow of innovation means that GDP remains constant.
E) A steady flow of innovation is all that is necessary for GDP to grow.

Question 73

Who is credited as the originator of modern microtheory of innovation?

A) Mountifort Longfield
B) Adam Smith
C) Wassily Leontief
D) Joseph Schumpeter

Question 74

The Industrial Revolution describes

A) the factory system that developed in the United States at the end of the nineteenth century.
B) the stream of new technology and resulting growth of output that began in the United States toward the end of the eighteenth century.
C) the stream of new technology and resulting growth of output that began in England toward the end of the eighteenth century.
D) the factory system that developed in England at the end of the nineteenth century.
E) the factory system that developed simultaneously in England and the United States in the late eighteenth century.

Question 75

In the United States, the financing for innovation has been increasingly supplied by

A) large oligopolistic enterprises.
B) independent inventors
C) newly founded entrepreneurial firms.
D) small enterprises.

Question 76

The ____ of an economy is the value of all goods and services produced there, divided by the total labor time devoted to the economy's productive activities.

A) earnings
B) efficiency
C) productivity
D) investment

Question 77

Which of the following contribute to productivity growth?

A) the education and experience of the labor force.
B) investment in plants and equipment.
C) innovation resulting in new products.
D) innovation resulting in new processes.
E) All of the above are correct.

Question 78

Most innovations in the economy come from

A) many different industries in a few countries.
B) a few industries in many different countries.
C) many different industries in many different countries.
D) a few industries in a few countries.
E) a few industries in the United States.

Question 79

Per-capita income in an economy

A) is the net income of that economy.
B) is the average income of all people in that economy.
C) is the difference between exports and imports in that economy.
D) is the difference between earnings and consumption of all people in that economy.

Question 80

What is the process that begins with invention and includes improvement to prepare the invention for practical use and marketing of the invention or its products?

A) Sales
B) Innovation
C) Productivity
D) Commercialization