Persistence of Obsolete Technologies in Low-Wage Economies
The economic model of technology choice explains why technologies that became obsolete in Britain during the Industrial Revolution may persist in other countries. This phenomenon is not due to a lack of access to modern methods, but rather to economic incentives. In regions with very low relative labor costs, the isocost lines are extremely flat, making older, more labor-intensive production methods the most cost-effective option, even when technologically superior alternatives are available.
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Ch.2 User-centered design process - User Experience Design - Winter 23 @ UI Design in UI @ University of Michigan - Ann Arbor
UI Design in UI @ University of Michigan - Ann Arbor
User Experience Design - Winter 23 @ UI Design in UI @ University of Michigan - Ann Arbor
UI @ University of Michigan - Ann Arbor
User Experience Design @ UI Design in UI @ University of Michigan - Ann Arbor
University of Michigan - Ann Arbor
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.2 Technology and incentives - The Economy 2.0 Microeconomics @ CORE Econ
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Which of the following factors contributed to Britain's early innovation during the Industrial Revolution?
Why was the high cost of labour in Britain a significant factor in driving innovation during the Industrial Revolution?
How did the availability of cheap energy sources like coal influence innovation in Britain during the Industrial Revolution?
Which of the following best explains how the timing and location of Britain contributed to its innovation during the Industrial Revolution?
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Robert C. Allen
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Persistence of Obsolete Technologies in Low-Wage Economies
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An international manufacturing firm observes that its factory in a high-wage country uses fully automated robotic arms for assembly, while its factory in a low-wage country uses a much older, manual assembly line to produce the same product. From an economic standpoint, what is the most likely reason for this difference in technology adoption?
The continued use of older, more labor-intensive production methods in a country, despite the availability of more modern, capital-intensive alternatives, is definitive proof that the country's firms are acting irrationally or are unaware of the better technologies.
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In an economic model explaining why older, more labor-intensive technologies persist in some regions, what is the primary factor that causes the isocost line to be very flat, making these older methods the least-cost option?
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A developing country's textile industry predominantly uses old, manually operated looms, which require a large workforce but little capital investment. A new, automated loom technology exists that is far more productive but has a high purchase price. If a global innovation suddenly causes the price of these new automated looms to fall by 50%, but wages in the developing country remain unchanged and very low, what is the most likely impact on the country's textile industry?