Official explanations
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
The best answer is E. The author contends that price-fixing is normal and beneficial in industrialized societies. The author proceeds to support this assertion with descriptions of various forms of price-fixing in various kinds of industrialized societies. Moreover, in the context of a discussion of nonsocialist countries other than the United States, the author indirectly restates the argument in favor of price-fixing.
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
This question asks whether one or more of the questions identified by Roman numerals can be answered on the basis of the information given in the passage. In questions of this kind, each part identified by a Roman numeral must be considered individually. The question I can be answered by the information in following excerpts which mention some different ways of fixing prices. Questions II and III cannot be answered from information provided by the passage. The best answer, therefore, is A
Quote:
- Each large firm will thus avoid significant price-cutting
- they expect it to be brought about by a number of explicit agreements among large firms
- 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.
- 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.
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
The best answer is C. Determining the author's attitude toward a topic requires locating all references to the topic in the passage and considering both the literal meanings and the connotations of the words used concerning the topic. Thus, the author refers to "most economists" or "economists in the United States" or "those economists". The author describes them as "captivated by the spell of the free market," as failing to see price- fixing when it occurs, as failing to consider the economies of nonsocialist countries other than the United States, and as mistakenly "hailing" price-fixing in the Soviet Union as a return to the free market. The choice that best describes these references is "critical and condescending."
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
The best answer is C. Lines 1-7 allow one to infer that it is to "Most economists" (line I) that a price fixed by the seller "seems pernicious," and that these economists consider
price-fixing pernicious because they believe that only the "aggregate of consumers" (line 7) should establish 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
The best answer is B, based on lines 11-15, which state that price-fixing is normal in all industrialized societies because the industrial system provides price-fixing " as an effortless consequence of its own development."
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
The best answer is E, based on lines 38 ("intentional price- fixing") and 41-42 ("commonplace").
7. According to the author, what is the result of the Soviet Union’s change in economic policy in the 1970’s?
(A) Soviet firma s 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.
The best answer is D. In lines 49-53, the author states that, in the early 1970's, the Soviet Union gave firms some " flexibility in adjusting prices." In lines 58-59, the author states that what these firms have in fact been given is "the power to fix prices." Thus, the result of the Soviet Union's change in economic policy in the 1970's is choice D, "Soviet firms have some authority to fix prices ."
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.
The best answer is A. The author discusses the behavior of large firms in industrialized societies in lines 15-29. In lines 26-29, the author refers to the firms' "common interest in a stable demand for products." It can be inferred from these references that the author believes that the directors of large firms currently anticipate the demand for products. Since the author describes price-fixing as an ongoing phenomenon (lines 11-29), it can be inferred that the author would be likely to agree that the large firms' directors will also con- tinue to anticipate the demand for products.
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
The best answer is B. Throughout the passage, the author criticizes the point of view of ' 'most economists in the United States" -those who believe that the free market is best and that price-fixing is pernicious. Thus, the first paragraph argues that price-fixing is normal and valuable in all industrialized countries. The second paragraph argues that the experience of nonsocialist countries other than the United States provides no support for the point of view of these economists. The third paragraph argues that these economists are wrong in thinking that the Soviet Union has moved toward a free market. Thus, it can be inferred that the author's primary concern is to criticize this point of view.