UNIT 1: Information Technology and Emerging Trends Innovation is the commercialization and improvement of the

existing products.
The rise of information and communication technologies (ICT)
– that is, computers, software, telecommunications, and the
internet – and the large impact that these new technologies are
having on the way that society functions, have prompted many
to claim that we have entered a new era.

Industrial Revolutions

A period of development in the latter half of the 18th century,

where there is change from one economy to another. Product innovations result in the production of a new product,
such as the change from a three-wheel car to a four-wheel car,
or the change from LP (Long Play/Playing) records to CDs
(Compact Discs). Process innovations increase the efficiency
of the methods of production of existing products, for example
the invention of the assembly-line technique.

Here are the different Industrial Revolutions with their

products / services, transportation, production system, and
communication.

First Industrial Revolution - 1765

Started in England during the late 18th century, concentrated in

Britain and initially focused on textile manufacturing.

 Significant evolutions: Cort’s puddling; rolling process

for making iron, Crompton’s mule for spinning cotton,
Watt steam engine
 Products / Services – Vegetables, Coal, Iron,
Discovery of chemicals
 Transportation – Railroads, Basic farming
 Production System – Manual Labor to mechanical
 Communication - Printed materials

Second Industrial Revolution - 1870

 Significant evolution: Development of electricity,

Internal-combustion engine,
Generally, the term refers to eras when rapid and significant
 Railway, Chemical industry
technological changes fundamentally alter the way that
 Products / Services – electricity, chemicals,
production is carried out in society, affecting not only how
petroleum, steel
people work but also how they live their lives.
 Transportation – automobiles, aircrafts
Industrial revolution involves technological, socioeconomic,  Production System – machine-aided equipment
and cultural aspects. It occurs when technological change  Communication – telephone, telegraph
fundamentally transforms the way in which a society carries out
the production and distribution of goods. Third Industrial Revolution - 1969

The changes could be inventions, innovations, product  Started with the development of transistors and the
innovations, or process innovations. The term ‘invention’ refers rise of electronics and digital technology.
to the discovery of new products or processes, while  Products / Services – Internet, rise of electronics,
‘innovation’ refers to the commercialization (bringing to the source of energy: nuclear power
market) of new products or processes.  Production System – Automation

Invention is the discovery of new products and processes. Fourth Industrial Revolution

Klaus Schwab described the fourth industrial revolution as

marked by an era of technological revolution that is blurring the
lines between the physical, digital, and biological spheres.
IT and PRODUCTIVITY Example Computation for Productivity

Economists interested in the pervasive effects of technological Question1: If a group of workers produces 10,000 units of
change in different industrial revolutions have devised the output in one year, and 12,000 units the next year. Calculate
concept of a General Purpose Technology (GPT). It is a the percentage increase in productivity.
technology of wide application used in various industries and
whose impact is strong on their functioning. Answer: You want to know the percentage increase
represented by the second year's output, 12,000, over the first
Main Characteristics of a GPT year's output, 10,000. Subtracting 10,000 from 12,000 gives us
the increase. Divide the answer by 10,000 to calculate the
As you read the list, consider how a new technology such as increase relative to the first year. Then multiply by 100 to turn
electricity or information technology fulfils each criterion. the answer into a percentage. 12,000 − 10,000 = 2,000 ; 1
20,0,00000 * 100 = 20% So, output increased by 20 percent.
 It must have a wide scope for improvement and As the number of workers stayed the same, this is also the
elaboration - this means that the technology does not increase in productivity.
appear as a complete and final solution, but as a
technology that can be improved through the different Question2: Calculate the percentage increase in productivity if
opportunities for technological change that surround the output expands from 12,000 in year 2 to 15,000 in year 3.
it.
 It must be applicable across a broad range of uses - Division of Labor and Productivity
this means that its use is not restricted, for example,
to only one industry but open to many different types The division of labor refers to the degree to which the various
of industries and consumers. tasks involved in the production of a good or service are
 It must have a potential use in a wide variety of divided among different workers.
products and processes - this means that the new
Productivity increases when the division of labor increases.
technology should not result in the creation of only
Increases in productivity can be transmitted throughout the
one set of products (such as a computer), but a wide
economy for several reasons:
set of products (such as complex new air-traffic
control systems or new inventory controls). ● Productivity – Income
 It must have strong complementarities with existing or
potential new technologies - this means that the Increases in productivity can lead to higher incomes for an
technology does not only replace existing methods economy's citizens. All output must be transformed, through
but also works with them, ensuring an even broader the process of production and sale, into someone's income
impact on the systems of production and distribution. (e.g. the boss's profits and the workers’ wages). Hence,
increases in productivity, which allow more output to be
produced by a given amount of inputs, also lead to more
Productivity income per head, that is, greater wealth for society. For
example, if more cars can be produced due to increases in the
Productivity is the quality of producing something. It is a productivity of car production, more cars are sold, which means
measure of the efficiency of a person, machine, factory, that the car manufacturers’ revenues increase.
system, etc., in converting inputs into useful outputs. It is an
indication of the efficiency of production or distribution. ● Productivity – Cost of Production

The Effect of Technology on Productivity If increases in wages are linked to increases in productivity,
then workers’ wages may also rise (or, at least, their
Labor productivity can be measured as output produced per employment prospects may be more secure). Second,
hour of labor. For example, consider an automobile factory that increases in productivity diffused throughout the economy have
can produce 10 cars per day using 100 hours of labor. If an an effect on prices. Increases in productivity tend to lower the
invention permits those same workers to produce 20 cars in cost of production, precisely because more output can be
the same amount of time, their productivity has been doubled. produced with the same amount of inputs. Since cost
reductions tend to be translated into price reductions,
Gross Domestic Product (GDP) - Total monetary or market increases in productivity eventually tend to reduce prices.
value of all the finished goods and services produced within a Indeed, the introduction of assembly lines made a substantial
country's borders in a specific time period. Total output divided contribution to the affordability of consumer durables such as
by total labor hours in the year gives us a measure of labor the car. The increase in income per head and the reduction in
productivity. A 5 per cent growth in prices allow consumers to be better off.

UK productivity over a year means that the UK economy has

become 5 percent more productive than it was in the previous
year. This should mean that the economy can produce 5 per
cent more output (GDP) with the same number of inputs.
Prices and Industrial Change

How can we look at price changes over time in industries in

which the product undergoes many changes, especially in
early stages? We use the concept of the price index.

Indices are used a lot in economics. They are basically a

simple way of measuring change.

Price index is a measure of the average level of prices for

some specified set of goods and services, relative to the prices
of a specified base period. The most widely used method of
constructing an index is based on the notion of the percentage.
An example is provided below.

Suppose that the price of a product is Php 500 in 2000 and

Php 750 in 2001 and Php 1000 in 2002. In this simple
example, our market basket consists of only one product.
Selecting year 2000 as the base year, we can express the
prices in years 2001 and 2002 relative to the price in year 2000
as follows:

Changes in Industry Structure

Industry structure refers mainly to the way in which power is

distributed among firms. This can be described by factors such
as the number of firms in the industry and the distribution of
market shares.