Synthesizing a Model and Historical Data to Explain the Industrial Revolution

Incentives for Technological Innovation

Imagine two pre-industrial economies, Country X and Country Y. In Country X, wages for workers are very high, but the cost of coal is very low. In Country Y, wages are low, while the cost of coal is high. A new invention, the steam-powered loom, is developed. It requires a large amount of coal to operate but significantly reduces the number of workers needed to produce cloth. Based on the economic incentives created by these conditions, which of the following outcomes is most likely?

Critique of Technological Determinism

Technological Adoption and Input Costs

An economic theory suggests that the path of technological innovation is driven by the relative costs of different inputs, such as labor and energy. Match each economic scenario describing these relative costs to the most likely incentive for technological development it would create.

An economic theory of technological choice suggests that if 18th-century France had experienced a sudden and dramatic increase in wages while its coal prices remained stable, this change would have created a strong economic incentive for French firms to adopt the same types of labor-saving, energy-intensive technologies that were being developed in Britain.

The Innovator's Dilemma in 18th-Century France

A key economic theory explains why certain technologies were adopted in some countries but not others during the 18th century. Arrange the following statements into a logical sequence that demonstrates how a country's specific input costs (e.g., for labor and energy) would lead to the adoption of a new, labor-saving, energy-using machine.

An economic model explains the Industrial Revolution's origin by arguing that firms adopt new technologies based on the relative prices of inputs like labor and energy. This model posits that Britain's uniquely high wages and cheap coal created a powerful incentive to develop and use labor-saving, energy-intensive machinery. Which of the following hypothetical discoveries would most seriously weaken this explanation?

Policy Evaluation for Technological Innovation

Wages Relative to the Price of Energy in Six Cities (Early 1700s)