1. CONTEMPORARY ECONOMICS© Thomson South-Western 12.3Issues of Technological Change  Discuss the impact of research and development on the standard of living.  Explain the relationship between technological change and employment levels.  Describe industrial policy, and the arguments for and against its use. Objectives

2. CONTEMPORARY ECONOMICS© Thomson South-Western 12.3Issues of Technological Change  basic research  applied research  industrial policy  cluster Key Terms

3. CONTEMPORARY ECONOMICS© Thomson South-Western 12.3 Issues of Technological Change SLIDE 3 Research and Development Improvements in technology arise from scientific discovery, which is the product of research. Economists distinguish between basic research and applied research.

4. CONTEMPORARY ECONOMICS© Thomson South-Western 12.3 Issues of Technological Change SLIDE 4 Basic and Applied Research Basic research is the search for knowledge without regard to how that knowledge will be used; a first step toward technological advancement. Applied research seeks answers to particular questions or applies scientific discoveries to develop specific products.

5. CONTEMPORARY ECONOMICS© Thomson South-Western 12.3 Issues of Technological Change SLIDE 5 R&D Comparisons Across Countries Investment in R&D reflects the economy’s efforts to improve productivity through technological discoveries. One way to track R&D spending is to measure it relative to gross domestic product, or GDP. The United States devotes relatively more resources to R&D than most other advanced economies. This results in a higher standard of living for Americans.

6. CONTEMPORARY ECONOMICS© Thomson South-Western 12.3 Issues of Technological Change SLIDE 6 R&D Spending as a Percentage of GDP for Major Economies During the 1980s and 1990s Figure 12.7

7. CONTEMPORARY ECONOMICS© Thomson South-Western 12.3 Issues of Technological Change SLIDE 7 Technological Change and Employment Levels Technological change and labor productivity Technological change and employment levels across countries

8. CONTEMPORARY ECONOMICS© Thomson South-Western 12.3 Issues of Technological Change SLIDE 8 Industrial Policy Government involvement Identifying industry clusters Pitfalls of picking technological winners