A Level Economics AQA Practice Exam

What is a primary characteristic of creative destruction?

1. Reduction in the number of firms in the market

2. Reinforcement of existing monopolies

3. Simultaneous innovation and market disruption

4. Stagnation of product development

The correct answer is: Simultaneous innovation and market disruption

Creative destruction refers to the process where innovation leads to the demise of older technologies, products, or businesses, while simultaneously paving the way for new ones to take their place in the market. This concept emphasizes that in a dynamic economy, new inventions and advancements can disrupt existing market structures and practices, forcing firms and industries to adapt or risk being left behind. The primary characteristic of this concept is the simultaneous occurrence of innovation and market disruption. As new products or services are introduced, they can render existing ones obsolete, compelling a shift in consumer preferences and potentially causing established companies to struggle or fail. This interplay fuels overall economic growth by encouraging continuous improvement and adaptation within industries. In contrast, the other options represent scenarios that do not align with the principles of creative destruction. Reducing the number of firms might occur as a consequence of disruption, but it is not a defining feature of the process. The reinforcement of existing monopolies contradicts the concept, as creative destruction seeks to challenge and dismantle monopolistic practices through innovation. Lastly, stagnation of product development is inherently opposed to creative destruction, which thrives on ongoing advancements and improvements rather than a lack of innovation.