Most economists in the united States seem
captivated by the spell of the free market. Conse-
quently, nothing seems good or normal that does
not accord with the requirements of the free market.
(5) A price that is determined by the seller or, for
that matter, established by anyone other than the
aggregate of consumers seems pernicious. Accord-
ingly, it requires a major act of will to think of
price-fixing (the determination of prices by the
(10) seller) as both "normal" and having a valuable
economic function. In fact, price-fixing is normal
in all industrialized societies because the indus-
trial system itself provides, as an effortless conse-
quence of its own development, the price-fixing
(15) that it requires. Modern industrial planning
requires and rewards great size. Hence,
a comparatively small number of large firms will
be competing for the same group of consumers.
That each large firm will act with consideration of
(20) its own needs and thus avoid selling its products
for more than its competitors charge is commonly
recognized by advocates of free-market economic
theories. But each large firm will also act with
full consideration of the needs that it has in
(25) common with the other large firms competing for
the same customers. Each large firm will thus
avoid significant price-cutting, because price-
cutting would be prejudicial to the common interest
in a stable demand for products. Most economists
(30) do not see price-fixing when it occurs because
they expect it to be brought about by a number of
explicit agreements among large firms; it is not.
Moreover, those economists who argue that
allowing the free market to operate without inter-
(35) ference is the most efficient method of establishing
prices have not considered the economies of non-
socialist countries other than the United states.
These economies employ intentional price-fixing,
usually in an overt fashion. Formal price-fixing
(40) by cartel and informal price-fixing by agreements
covering the members of an industry are common-
place. Were there something peculiarly efficient
about the free market and inefficient about price-
fixing, the countries that have avoided the first
(45) and used the second would have suffered drastically
in their economic development. There is no indica-
tion that they have.
Socialist industry also works within a frame-
work of controlled prices. In the early 1970's,
(50) the Soviet Union began to give firms and industries
some of the flexibility in adjusting prices that a
more informal evolution has accorded the capitalist
system. Economists in the United States have
hailed the change as a return to the free market.
(55) But Soviet firms are no more subject to prices
established by a free market over which they
exercise little influence than are capitalist firms;
rather, Soviet firms have been given the power to
fix prices.
1. The primary purpose of the passage is to
A. refute the theory that the free market plays a useful role in the development of industrialized societies
B. suggest methods by which economists and members of the government of the United States can recognize and combat price-fixing by large firms
C. show that in industrialized societies price-fixing and the operation of the free market are not only compatible but also mutually beneficial
D. explain the various ways in which industrialized societies can fix prices in order to stabilize the free market
E. argue that price-fixing, in one form or another, is an inevitable part of and benefit to the economy of any industrialized society
2. The author's attitude toward "Most economists in the United States"(line 1) can best be described as
A. spiteful and envious
B. scornful and denunciatory
C. critical and condescending
D. ambivalent but deferential
E. uncertain but interested
3. It can be inferred from the author's argument that a price fixed by the seller "seems pernicious"(line 7) because
A. people do not have confidence in large firms
B. people do not expect the government to regulate prices
C. most economists believe that consumers as a group should determine prices
D. most economists associate fixed prices with communist and socialist economies
E. most economists believe that no one group should determine prices
4. The suggestion in the passage that price-fixing in industrialized societies is normal arises from the author's statement that price-fixing is
A. a profitable result of economic development
B. an inevitable result of the industrial system
C. the result of a number of carefully organized decisions
D. a phenomenon common to industrialized and nonindustrialized societies
E. a phenomenon best achieved cooperatively by government and industry
5. According to the author, price-fixing in nonsocialist countries is often
A. accidental but productive
B. illegal but useful
C. legal and innovative
D. traditional and rigid
E. intentional and widespread
6. According to the author, what is the result of the Soviet Union's change in economic policy in the 1970's
A. Soviet firms show greater profit.
B. Soviet firms have less control over the free market.
C. Soviet firms are able to adjust to technological advances.
D. Soviet firms have some authority to fix prices.
E. Soviet firms are more responsive to the free market.
7. With which of the following statements regarding the behavior of large firms in industrialized societies would the author be most likely to agree?
A. The directors of large firms will continue to anticipate the demand for products
B. The directors of large firms are less interested in achieving a predictable level of profit than in achieving a large profit.
C. The directors of large firms will strive to reduce the costs of their products
D. Many directors of large firms believe that the government should establish the prices that will be charged for products
E. Many directors of large firms believe that the price charged for products is likely to increase annually.
8. In the passage, the author is primarily concerned with
A. predicting the consequences of a practice
B. criticizing a point of view
C. calling attention to recent discoveries
D. proposing a topic for research
E. summarizing conflicting opinions
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