Question

In the 1890s, the General Electric Company (GE) acquired patents on improved versions of Thomas Edison's original light bulb and signed exclusive agreements with the manufacturers of lamp-making equipment and glass bulbs that required them to sell their products to only GE. In 1897, GE had a firm grip on the market for electric light bulbs.

The deadweight loss arose in this market because _______.

A. the higher price of light bulbs increased the demand for candles
B. the value of additional light bulbs to consumers exceeded the opportunity cost of producing them
C. the higher price of light bulbs reduced the demand for electric lamps
D. the higher price of light bulbs harmed even wealthy consumers who would have bought them at the higher price

Answer 1

In the 1890s, GE's monopolistic practices in the electric light bulb market led to a deadweight loss because the value consumers placed on additional light bulbs was higher than the opportunity cost of producing them. High prices reduced consumption below the optimal level, causing a loss in economic welfare. The context shows the significant societal impact of electricity during this era. The correct option is A. The deadweight loss arose in this market because the higher price of light bulbs reduced the demand for electric lamps.

Step-by-step explanation:

In the 1890s, the General Electric Company (GE) acquired patents and entered into exclusive agreements that essentially monopolized the electric light bulb market. The deadweight loss in this market occurred because the value of additional light bulbs to consumers exceeded the opportunity cost of producing them. With GE controlling the supply, they arguably increased prices above the marginal cost of production, reducing the quantity of light bulbs sold in the market below the socially optimal level. Consumers who valued the light bulbs more than the cost to produce them did not buy them due to the artificially inflated prices, leading to a loss of economic welfare or deadweight loss.

By comparing this to the given historical context, we know that this monopolistic control had substantial effects. Electricity was transformative in the industrial sphere and integral to urbanization, greatly changing the nightly habits and work environments of many Americans.

Although consumers were deprived of the ideal price and quantity of light bulbs due to GE's market control, it should be noted that technologies like alternating current (AC), developed by George Westinghouse, expanded the reach of electrical power further than Edison's direct current (DC) systems. This facilitated broader societal shifts and advancements through the electrification of more homes and industries.