Correlate each to the New Economy

Question

Correlate each to the New Economy:

1.  the rate of productivity growth
2. information technology
3.  increasing returns
4.  network effects
5. global competition

 

Answer 1

Each of the above is a feature of the New Economy.  The rate of productivity growth has risen substantially because of innovations using computers, microchips, new telecommunications devices and the Internet.  All innovations define features of what we call information technology that connects information in all of the parts of the world with information seekers.  New information products are frequently digital in nature and can be simply replicated once they have been building up.  The start-up cost of new technology and firms is high, however expanding production has a very low marginal cost that leads to economies of scale – firms’ output raise faster than their inputs.  Network influence refers to a kind of economy of scale whereby certain information products become more valuable to every user as the number of buyers grows.  For instance, a fax machine is more useful to you while lots of other people and firms have one; the similar is true for compatible word-processing programs.  Global competition is a feature of the New Economy since both transportation & communication can be accomplished at much lower cost & faster speed than previously that expands market possibilities for consumers and producers both who are not very restricted by national boundaries today.