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Free Market vs price fixing

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Free Market vs price fixing

by dumb.doofus » Mon Jul 13, 2009 6:37 pm
Most economists in the United States seem captivated by the spell of the free market. Consequently, nothing seems good or normal that does not accord with the requirements of the free market. A price that is determined by the seller or, for that matter, established by anyone other than the aggregate of consumers seems pernicious. Accordingly, it requires a major act of will to think of price-fixing (the determination of prices by the seller) as both “normal” and having a valuable economic function. In fact, price-fixing is normal in all industrialized societies because the industrial system itself provides, as an effortless consequence of its own development, the price-fixing 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 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 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 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 interference 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 by cartel and informal price-fixing by agreements covering the members of an industry are commonplace. Were there something peculiarly efficient about the free market and inefficient about price-fixing, the countries that have avoided the first and used the second would have suffered drastically in their economic development. There is no indication that they have.
Socialist industry also works within a framework of controlled prices. In the early 1970’s, 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. 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 passage provides information that would answer which of the following questions about price-fixing?
I. What are some of the ways in which prices can be fixed?
II. For what products is price-fixing likely to be more profitable that the operation of the free market?
III. Is price-fixing more common in socialist industrialized societies or in non-socialist industrialized societies?
(A) I only
(B) III only
(C) I and II only
(D) II and III only
(E) I, II, and III

3. 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

4. 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

5. 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 non-industrialized societies
(E) a phenomenon best achieved cooperatively by government and industry

6. According to the author, price-fixing in non-socialist countries is often
(A) accidental but productive
(B) illegal but useful
(C) legal and innovative
(D) traditional and rigid
(E) intentional and widespread

7. 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.

8. 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.

9. 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

I am interested in 2nd and 8th more than anything else.. with reasoning please..
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by scoobydooby » Tue Jul 14, 2009 2:15 am
my take: 1E 2A 3C 4C 5B 6C 7B 8A 9B

2A: the passage does mention some forms of price fixing- "Accordingly, it requires a major act of will to think of price-fixing (the determination of prices by the seller)" - 4th line

also "Formal price-fixing by cartel and informal price-fixing by agreements covering the members of an industry are commonplace" - 2nd para, 4th line



8A: not sure on this. large firms seek a stable demand, so they must continue striving for stable demand. seems to be supported by

"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"- 3rd last line of 1st para

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by mehravikas » Tue Jul 14, 2009 1:51 pm
1. E
2. A
3. B
4. E
5. B
6. D
7. B
8. E
9. B

Please post OAs.

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by Stacey Koprince » Wed Jul 15, 2009 11:52 am
Received a PM asking me to respond. I don't see a source posted for the question. Can you please post the source? I'm not allowed to respond until / unless the source has been properly cited. Thanks!
Please note: I do not use the Private Messaging system! I will not see any PMs that you send to me!!

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by dumb.doofus » Thu Jul 16, 2009 5:47 am
Stacey Koprince wrote:Received a PM asking me to respond. I don't see a source posted for the question. Can you please post the source? I'm not allowed to respond until / unless the source has been properly cited. Thanks!
Hi Stacy,

This is from the 1000 RCs Doc file.

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by ketkoag » Fri Jul 17, 2009 1:55 am
Hi Stacey,
Please help here..
Regards..

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by Spring2009 » Tue Jul 28, 2009 6:03 pm
My pick:
2B
8B

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Q.5

by mayankjain » Tue Sep 01, 2009 9:44 am
CAN SOMEBODY PLEASE EXPLAIN Q.5

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by nitya mithal » Sat Aug 28, 2010 8:06 am
Please help me with Q 3,5,6 ,8...

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by sunnyjohn » Fri Jul 29, 2011 2:30 am
I got the RC like this -

1st Para:

Most economists are ok with Free Market Concept.
Author doesn't agree with them.
Most economists thinks that competition among companies will bring down the prices.
Author thinks that it may also possible the companies may plan together and keep the prices high.

Overall Two views ( Author and Econ. ) -> Both are opposite to each other.

2nd Para:
Author said - Econ are not thinking out of box ( non-Socialist Countries )
In NS countries - its common that companies make agreement and fix the prices.
Author says - Price fixing has bad and good. those who adopted bad have suffered. (But there is no proof that they have adopted).

Overall One View (Author ) -> Attacked the Econ.

3rd Para:
Socialist countries:
Russia gave some rights companies to adjust prices in 1970,but companies are no more influencing the price fixed by free market instead they are fixing the price.

Overall: One view (Author) --> Negative Tone.

==========================================================
Overall: Author is criticizing Economist who have welcomes the Free market concept. However author is not totally against the Free market.

Author tone : Sarcastic and Negative.
=========================================================

1) E is best option. However I am not totally convinced by E.
A is second best, best there is no theory mentioned that FM play a role etc.

2) Must be A.

3) C

4) I believe A.

5) B (Ist para)

6) E (Second Para)

7) D (Last Para, last line)

8) A (Ist Para, 2nd or 3rd last line)

9) B

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by Bek » Fri Aug 05, 2011 3:19 pm
OAs:

1)E
2)A
3)C
4)C
5)B
6)E
7)D
8)A
9)B

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by thestartupguy » Tue Sep 13, 2011 3:00 am
Dear Sunnyjohn,

Did you create the summaries by reading only the first and the last line of each paragraph?

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by gui_guimaraes » Fri Feb 01, 2019 5:22 am
Hi Stacey! It's from OG, an old version, pre 2000...
Stacey Koprince wrote:Received a PM asking me to respond. I don't see a source posted for the question. Can you please post the source? I'm not allowed to respond until / unless the source has been properly cited. Thanks!