Technical progress

1. TECHNICAL PROGRESS

2. What is technical progress?
■ Refers to the discovery of new and improved methods of producing
goods.
■ Encompasses all those factors which raise the productivity of all factors
of production combined.
■ Changes in technology leads to an increase in the productivity of labor,
capital and other factors of production.

3. Hicks has distinguished three types of technical progress
depending on its effect on the rate of substitution of the factors
of production
1. Capital deepening technical progress
Technical progress is capital-deepening (or capital-using) if, along a line on
which the K/L ratio is constant, the MRSL K increases.This implies that
technical progress increases the marginal product of capital by more than
the marginal product of labor.The ratio of marginal products (which is the
MRSL K) decreases in absolute value; but taking into account that the slope
of the isoquant is negative, this sort of technical progress increases the
MRSL K.

4. 2. Labor deepening technical progress
Technical progress is labor-deepening if, along a radius through
the origin (with constant K/L ratio), the MRSL, K increases.This
implies that the technical progress increases the MPL faster than
the MPK.Thus the MRSL ,K, being the ratio of the marginal
products [(∂X/∂L)]/[(∂X/∂K)], increases in absolute value (but
decreases if the minus sign is taken into account).

5. 3. Neutral technical progress
Technical progress is neutral if it increases the marginal product
of both factors by the same percentage, so that the MRSL
K (along any radius) remains constant.

6. Phases of Technological Progress
1. Invention
■ Invention is the act of creating new technology. It involves a new scientific or
technical idea, and the means of its embodiment or accomplishment. To be
patentable, an invention must be novel and have utility.
2. Innovation
■ Innovation may be used synonymously with “invention” or may refer to
discovering a new way in which to use or apply existing technology. Everett
Rogers thought of innovation as an idea, behavior, or product that appears new
to its potential adopter.

7. There are five main attributes of innovative technology: Relative
Advantage, Compatibility, Complexity,Trialability, and Observability.
■ Relative advantage means the product or behavior is perceived as
being better than the alternatives by the person adopting the
innovation. Better can mean a lot of different things. It can be a device
that can peel a potato faster so it saves time or a seat belt that offers
the advantage of greater safety.
■ Compatibility refers to how the innovation aligns with the adopter’s
lifestyle.
■ Complexity is how easy or difficult innovation is to understand.The
easier an innovation is to understand and use, the more likely it is to be
adopted. Complex innovations face an additional challenge to
mainstream adoption.

8. ■ Trialability refers to the process of testing the innovation to see if, or
how well, it works. Extensive testing usually occurs before an innovation
is adopted or taken to market.
■ Observability involves seeing the product or behavior in action. It can
demonstrate how it can be used. It is easier to get potential adopters to
simply observe an expensive product like a car than it is to get all of
them in one for a test drive. Also, the more people around you that you
see using a product, the more likely you feel like buying that product
too.
3. Diffusion
■ Diffusion pertains to the spread of technology throughout a society or
industry. It is the process by which a new idea, product, or behavior is
accepted by the market.Technology diffusion means the spread of
usage/application of new technology from its current user to others.

9. Technological Change and Capital Formation:
■ The process of technological progress is inseparably
linked with the process of capital formation. In fact, both
go hand in hand. Technological progress is virtually
impossible without prior capital formation. It is because
the introduction of superior or more efficient techniques
requires the building up of new capital equipment which
incorporates new technology. In other words, new and
superior technology can contribute to national product
and its growth if it is first embodied in the new capital
equipment.
■ The capital accumulation has, therefore, been called the
vehicle for the steady introduction of new technology into
the economy.