A Level Economics AQA Practice Exam

What is meant by creative destruction?

1. The process of creating new jobs in the market

2. The market power of existing monopolies being destroyed

3. The establishment of stable prices across industries

4. The technological advancement that reduces production time

The correct answer is: The market power of existing monopolies being destroyed

Creative destruction refers to the process by which innovation and technological advancements lead to the demise of existing industries or companies, ultimately paving the way for new ones to emerge. This concept, introduced by economist Joseph Schumpeter, emphasizes that economic progress often relies on the upheaval of established businesses and market structures through new ideas and technologies. The process does not merely involve the weakening of monopolies, but rather a broader transformation within the economy where, as some companies fail, new ones rise, thus contributing to overall economic evolution and growth. This phenomenon reflects the dynamic nature of markets, where continual innovation can disrupt established practices and create new opportunities. The other options do not encompass the full scope of creative destruction. While creating new jobs, establishing stable prices, or reducing production time can result from technological advancements, they do not capture the core idea that innovation can lead to the decline of some entities while simultaneously fostering the growth of others. Understanding creative destruction highlights the complex interplay between innovation and the lifecycle of businesses within an economy.