Fascinating economy

Increased productivity makes more goods available more cheaply.

The Ripple Effect

Technology increases productivity by making it easier and cheaper to produce goods and services. This lowers prices and brings more goods and services to more people. There is also a ripple effect that occurs when goods and services are widely available. When more people have access to something, it changes how they behave.

Think of the cell phone. When very few people had a cell phone, its usefulness was limited. You could usually only reach people at home because few other people had cell phones.

However, as cell phones became less expensive, more and more people could buy them. Eventually, cell phone owners could reach more people in more places. That increased the number of calls. Today, most people can be reached no matter where they are.

Prices came down, more people got cell phones, and the number of conversations went up. That is the ripple effect in action.

Although Ransom E. Olds of Oldsmobile invented the original assembly line, Henry Ford introduced conveyor belts to the design, which greatly sped up production.

By 1914, the Ford factory was turning out a new Model-T every 93 minutes. Because of the speed of production, the Model-T could be made and sold very cheaply. Cars were no longer a luxury. Suddenly, millions of people could afford cars, and it did not take long for most families to have a car.

This had a ripple effect on the way people lived. Now that cars were so common, people could live farther from where they worked. This led to the development of suburbs. Instead of living in crowded cities or distant farms, people had both space and access to the city.

Ford’s assembly line changed the place – and the way – many people lived.

Because of the development of suburbs, more highways were needed for people to get back and forth to work. Soon there were highways connecting different cities all across the country. These highways made it easier to go long distances, and that meant that people could take vacations to far away places by driving there.

The tourism industry became much larger once most Americans had cars. With increases in tourism came more motels and amusement parks and restaurants.

The Model-T changed America into a car society, and this affected other parts of the American economy. Increases in productivity often have this kind of ripple effect.

Make It Fast

Distribution is another area that benefits from technological improvements. If productivity is improved, prices go down and more goods are available to consumers. And if goods can be moved around more quickly and inexpensively, the same thing happens.

Technology has been helping improve the distribution of goods since the first horse-drawn cart was piled full of goods to be transported elsewhere. In the past 50 years, there have been drastic improvements in distribution technology.

FedEx changed the package delivery industry by introducing a new type of system called the hub-and-spoke model.

Strange as it may sound, FedEx sent all of its packages to a central facility in Memphis before shipping them to their final destination. Even if you were sending a package from New York to Boston, it went to Memphis first. This is called the hub-and-spoke-model of distribution.

Here’s how Fred Smith, the founder of FedEx, explained the advantage of this method:

If you take any individual transaction, that kind of system seems absurd – it means making at least one extra stop. But if you look at the network as a whole, it is an efficient way to create an enormous number of connections. If, for instance, you want to connect 100 markets with one another and if you do it all with direct point-to-point deliveries, it will take 100 times 99—or 9,900—direct deliveries. But if you go through a single clearing system, it will take at most 100 deliveries. So you are looking at a system that is about 100 times more efficient.

FedEx not only used this new method of shipping packages. They employed new technological devices to make sorting and delivery easier. FedEx used bar codes to sort and track packages, and it put computers in delivery vans to map the driver’s route and continue tracking packages.

Both the hub-and-spoke model and electronic devices led to faster deliveries. Soon other delivery companies were imitating Federal Express. Today, fast, and reliable delivery is a regular part of life, thanks to FedEx and the technological advancements they developed and used.

Simplicity

Technologies do not have to be complicated or powerful to have a major impact on productivity and distribution. Sometimes it is enough just to make things simpler, like FedEx did, or to standardize methods.

One of the most influential technological advancements in the past century did both of these things. The cargo container is just a simple rectangular box, but it changed the world of shipping and distribution by standardizing and simplifying.

The cargo container is partly responsible for rapid increases in global trade.

The Revolutionary Box

Cargo containers are simple metal boxes with a wooden floor, 8 1/2 ft high and either 20 or 40 ft long. Because of their simplicity, the cargo container has increased the efficiency of cargo transportation, making the distribution of goods both faster and less expensive. This has increased the amount of international trade and made it possible for consumers to purchase goods more cheaply. There are nearly 15 million of these boxes currently roaming the Earth, and in 2005, nearly 8 million containers entered the United States. Their cargo was worth almost $800 billion.

Before containers, cargo was loaded and unloaded by dockworkers known as longshoremen. Longshoremen could sometimes use cranes and forklifts, but much of the cargo was contained in bags, boxes, and barrels that had to be moved piece by piece, sometimes by hand. This took a very long time and was tiring and dangerous. A normal ship could take a week or more to unload, with 20 longshoremen working around the clock. The cost of paying these dockworkers was enormous. Labor costs were at least half of the total cost of shipping goods.

With the use of cargo containers, freight can be loaded and unloaded much more quickly and easily. Special cranes called straddle carriers pick up and drop off containers. The straddle carriers grab containers, wheel them from ship to dock or vice versa, and drop them again, transporting a large amount of cargo in a matter of minutes. It now takes less than 10 hours to unload the same amount of cargo it once took a week to unload, and the process requires fewer workers and is less likely to involve accidents or breakage.

The cargo container also makes it much easier to transport goods from the dock to warehouses, distribution centers, and stores. The containers can be put onto flatbed train cars just as easily as they are loaded and unloaded from ships. Or they can be placed on wheels for transport by truck. Goods can go nearly the entire length of their journey from factory to store in the same container. This eliminates all of the wasted time of loading and unloading freight into different carriers.

The increase in speed and reduction in labor costs have made distribution much less expensive, and this makes the prices that consumers pay much lower. Before the cargo container, shipping costs accounted for about one-eighth of the price of goods. The cut that goes to shipping is now less than 1 percent. For example, it costs only 34 cents to ship a pair of shoes from an Asian factory to an American store that can sell the shoes for $45. The shipping costs once would have been $6 or $7. With such high shipping costs, it made more sense to simply make the shoes in America, where they were going to be sold. But many goods can be made more cheaply in other countries, and now that it is inexpensive to ship them to America, they cost much less at the store. This simple technology – the rectangular box – has revolutionized shipping and helped transform the global economy and the American consumer experience.

The Economic Effects of Technology

There is so much technology available today.

Technology can improve production and distribution. The improvements affect the price and availability of goods and services. They also influence how people live their lives.

Technology gives us different options and affects our decisions. When we are looking at the overall economy, we cannot ignore the effects of technology.

Think of all the things you do on the Internet, whether you use a desktop computer, a laptop, a tablet, or a handheld device. You can stay in touch with friends, catch up on the news, watch your favorite shows, or just check the weather forecast.

But the Internet is not just about getting information or having fun with friends. The Internet is also a key technology that has affected the overall economy. In fact, the Internet is the world’s largest marketplace.

The Communication Explosion

Different technologies have made it easier and easier to communicate. The invention of the printing press made it easier to print a large number of books. The invention of the radio made it possible to broadcast stories to large audiences.

With the Internet and smart phones, information of all kinds can be shared very efficiently with nearly everyone on Earth. We can send and receive documents, pictures, videos, and audio files over the Internet and over our phones, and we can do it almost instantly.

The ease of sharing information has led to a huge increase in the amount of communication taking place. People are sharing information far more than they ever have. Think about all the e-mails you write, and the texts you send. Would you ever write that many letters?

The Internet does more than increase communication. It affects how people live their lives. Information is necessary for making decisions, so the Internet impacts how people make choices.

Easier, faster communication gives both producers and consumers access to a greater amount of information. People can learn more to help them make better decisions, and they can make these decisions more quickly. Producers can communicate almost instantly with their employees, their suppliers, and everyone else involved in making allocation decisions. Meanwhile, consumers have the latest information about prices, availability, and quality, enabling them to make the wisest buying decisions.

The amount and speed of information sharing can help improve the way people play the game of economics.

It is easy to communicate these days, even on the go.

E-Commerce

Access to information is not the only way the Internet has affected the economy. The Internet has created an entirely new type of economic activity called e-commerce. It refers to online buying and selling of goods and services. E-commerce is the electronic form of retail sales.

E-commerce has changed the way many companies do business. Almost every store has a website that sells items people previously had to buy in their stores. Many companies do not have actual stores at all; they only sell online.

One of the earliest pioneers of e-commerce was Amazon.com, and the company remains one of the largest online retailers. Amazon began by selling books on the Internet. After achieving rapid success, the company branched out into other retail areas. Amazon now sells products ranging from electronics and toys to clothing, jewelry, tools, and more. Amazon is a leader in e-commerce, and its business practices have influenced the entire retail industry.