Technology is the single greatest factor that distinguishes modern economies from primitive ones. Because technology lowers the cost of production and provides new products. It increases both productive and allocative efficiency for all firms. However, the advance of technology is unpredictable. Indeed, it is very difficult even to measure the pace of new technology.
For this reason, technology is often excludes from economic models to simplify their analysis. In economics, the short run is consideres a period of time during which firms can change variable inputs, but not fixed costs.
The long-run is consideres a long enough duration so that firms can change even fixed costs.
Some economists try to take a very long run view in which technology changes. But it is very difficult to form such an analysis, even using statistics. Depending on how fast technology is changing within an industry.
There are 4 processes to technological advances in an economy: discovery, invention, innovation, and diffusion. Discovery involves the elucidation of the fundamental processes of nature through observations of nature, reasoning, and experimentation.
Science is the branch of knowledge that seeks to understand the fundamental nature and processes of the universe. Advances in science depend on the scientific method.
First, a hypothesis is formes to explain some observation, then an experiment is designe to test the hypothesis.
When feasible, the experiment will consist of running 2 experiments side-by-side with all variables in common except for one. This isolates the variable to determine what effect it has on the overall process.
Ultimately, the validity of the hypothesis is determines by the reproducibility of the experiment. And how well it coheres with previous knowledge.
When there is significant confidence in the correctness of a hypothesis, then it is call a theory. Of course, economics is one of the sciences where testing hypotheses is usually infeasible. So most advances in economics are makes by assessing how well hypotheses explain or predict the economy.
Most of these predictions are based on economic models, which incorporate the hypotheses as a basis for the predictions. Although discoveries are important for providing fundamental knowledge, most businesses do not invest money to make discoveries. Because discoveries are often serendipitous and they rarely apply to a particular business.
Which is why a large part of science is finances by the government. Invention is the discovery or development of a product or process by applying previous knowledge in new ways.