FREE Reading Comprehension Practice Problems for CAT

Tips on how to approach CAT Reading Comprehension passages
  • Don’t get into the minor details of the passage; just focus on what each paragraph has to say
  • As you read, create a map of the passage; you must remember what thing is located where in the passage
  • Once you read the question, come back to the part of the passage that is likely to have the answer
  • Compare the options and eliminate the incorrect choices based on the evidence that you see in the passage
  • Choose the answer once you are convinced of the right choice

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Reading Comprehension Practice Passage

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 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.

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Question: The primary purpose of the passage is to

refute the theory that the free market plays a useful role in the development of industrialized societies
suggest methods by which economists and members of the government of the United States can recognize and combat price-fixing by large firms
show that in industrialized societies price-fixing and the operation of the free market are not only compatible but also mutually beneficial
explain the various ways in which industrialized societies can fix prices in order to stabilize the free market
argue that price-fixing, in one form or another, is an inevitable part of and benefit to the economy of any industrialized society

Question: 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?
I only
III only

Question: The author’s attitude toward “Most economists in the United States” can best be described as

spiteful and envious
scornful and denunciatory
critical and condescending
ambivalent but deferential
uncertain but interested

Question: It can be inferred from the author’s argument that a price fixed by the seller “seems pernicious” because

people do not have confidence in large firms
people do not expect the government to regulate prices
most economists believe that consumers as a group should determine prices
most economists associate fixed prices with communist and socialist economies
most economists believe that no one group should determine prices

Question: The suggestion in the passage that price-fixing in industrialized societies is normal arises from the author’s statement that price-fixing is

a profitable result of economic development
an inevitable result of the industrial system
the result of a number of carefully organized decisions
a phenomenon common to industrialized and non-industrialized societies
a phenomenon best achieved cooperatively by government and industry

Question: According to the author, price-fixing in non-socialist countries is often

accidental but productive
illegal but useful
legal and innovative
traditional and rigid
intentional and widespread

Question: According to the author, what is the result of the Soviet Union’s change in economic policy in the 1970’s?

Soviet firms show greater profit.
Soviet firms have less control over the free market.
Soviet firms are able to adjust to technological advances.
Soviet firms have some authority to fix prices.
Soviet firms are more responsive to the free market.

Question: With which of the following statements regarding the behavior of large firms in industrialized societies would the author be most likely to agree?

The directors of large firms will continue to anticipate the demand for products.
The directors of large firms are less interested in achieving a predictable level of profit than in achieving a large profit.
The directors of large firms will strive to reduce the costs of their products.
Many directors of large firms believe that the government should establish the prices that will be charged for products.
Many directors of large firms believe that the price charged for products is likely to increase annually.

Question: In the passage, the author is primarily concerned with

predicting the consequences of a practice
criticizing a point of view
calling attention to recent discoveries
proposing a topic for research
summarizing conflicting opinions

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