Pay attention to every word

In the HSC exam, every word in every question is deliberate. Each word has a purpose. 

That’s why decoding exam questions is so important if you want to access the higher marks on offer. 

Let’s take an example. Below is Q18 from the 2020 NSW Economics HSC. It’s a tariff question with lots of words and numbers. I got asked about this specific question by a student and it’s a great example of the power of decoding exam wording.

I think the trickiest part of the question is the expression “total consumption”. What even is total consumption? 

Let’s say we’re in the exam and we’re feeling a bit lost. We can decode the words to come to the answer.

First, we can think about consumption as being demand, and demand involving how much of something consumers want over a range of prices. 

So — if we think about consumption, consider the fact that the question has told us that:

• the economy has introduced international trade

• there are imports.

Given all this, total consumption will include the total amount consumers actually want to consume. That is, locally produced goods AND imports. So the 35,000 kg figure includes the amount of cotton produced by the economy AND the 10,000 kg of cotton that is now imported. If 35,000 kg includes exports and imports, and imports are 10,000kg, that leaves domestic production at 25,000 kg. 

You can then work out the answer. If domestic product, after the tariff is 25,000 kg, then domestic production has fallen by 5,000 kg. Just calculate tariff revenue and you’re golden.

You can see my working out process below.

My brain in action.

Also, check out the video below for the step-by-step strategies. 

Pay very close attention to the wording. Every word serves a purpose in HSC exam questions.

Another tough protection question (2019 HSC)

In the NSW Economics HSC, questions 19 and 20 are typically the trickiest multiple choice. This was the case in the 2019 Economics HSC exam. 

This is the graph that applies to both questions.

Even before I’ve looked at Q19, this is how I annotated the question.

You can see from the question that the world price is $3. Point A represents domestic supply and point B represents domestic demand. This gives us a shortage of domestic demand of 40,000 units. This gap will be filled by imports (the distance between point A and point B).

Another point that can be useful to know is point C. This is where domestic demand equals domestic supply and imports equals zero (there are NO imports).

I think we’re ready to try Q19. You can see my annotations below.

In Q19, the first bit of relevant info is that the government wants to impose a tariff that will keep imports to 20,000 units. This is the point of an import quota of 20,000 units: imports will be limited to 20,000 units ONLY.

Go back to the original graph. Imports will equal 20,000 at a price of $4. Check for yourself: at $4, domestic supply is 30,000 while domestic demand is 50,000 — imports of 20,000 will fill the gap.

So, how does the government go from a world price of $3 to an artificial price of $4? It imposes a tariff of $1 per unit. In other words, the tariff price will be $4 (world price of $3 plus the tariff of $1).

The focus of the question is about the total tariff revenue that will be generated for the government. The formula for this is = the size of the tariff * the number of imports.

In this question it will be $1 * 20,000 = $20,000. Your answer is C.

Now, time for the trickier one. Time for Q20. Here’s my annotations and then I’ll walk you through it.

This is a tough one, so let’s go slow.

Our starting point is the world price — which is $3.

At $3, we know that the size of imports is 40,000 units. 

If there are NO IMPORTS, which is the focus of the question, domestic supply must equal domestic demand. At the world price ($3), domestic demand is 60,000 and domestic supply is 20,000. For there to be NO IMPORTS, domestic supply will need to equal 60,000.

Go back to the original graph. Where does domestic supply equal 60,000 units? When price is $7.

Therefore, if the world price is $3, the government must pay a subsidy of $4 per unit to raise the price to $7 and ensure domestic production is 60,000 units. Your answer is D. 

Questions in the comments!

Who pays the tariffs in a trade war?

Trade war! As the United States and China impose tariffs and retaliate with further tariffs, it’s worth asking a question: what’s the economic impact of all this?

You see, if you listen to some people, you might assume that when the US imposes a tariff on Chinese goods, Chinese firms pay the tariff. This is not correct.

First, a little economic theory. A tariff is a tax on imports. It is a form of trade protection that makes imported goods more expensive (less competitive, less desirable) and makes locally produced goods more relatively cheaper (more competitive).

In 2019’s trade war, US President Donald Trump has been vocal about how China is paying for the tariffs. He’s portrayed this measure as a punishment for Chinese producers. But the ones who are really suffering are US consumers and companies.

This is the view of an excellent article by Reuters’ Rajesh Kumar Singh. It’s really outstanding. Here’s what he says about the true impact of the tariffs:

Singh’s excellent article.

“Importers often pass the costs of tariffs on to customers - manufacturers and consumers in the United States - by raising their prices. US business executives and economists say US consumers foot much of the tariff bill.”

And this:

“Stephen Lamar, executive vice president of the American Apparel & Footwear Association, said the new tariffs would hit US consumers far harder than Chinese manufacturers, who produce 42% of apparel and 69% of footwear purchased in the United States.”

Singh goes on to discuss how major stores in the US, such as Walmart and Macy’s, have warned of higher prices for shoppers due to the tariffs on imported Chinese goods. Indeed, Singh cites research conducted by the Federal Reserve Bank of New York, Princeton University and Columbia University that shows US companies and consumers have paid US$3 billion a month in additional taxes because of the tariffs on Chinese goods and global metal imports.

So, what’s the point here? I think it’s important to note that while the goal of the US’ protectionist measures are to punish China, they are ultimately punishing US consumers. This is because, even with the tariffs, consumers need to purchase Chinese goods. There are no viable alternatives. China produces too much of the stuff we need and want. Consumers pay the tax.

Furthermore, by punishing US consumers, this could slow US domestic growth and lead to lower global growth. Which could negatively affect Australia.

“Stephen Lamar, executive vice president of the American Apparel & Footwear Association, said the new tariffs would hit US consumers far harder than Chinese manufacturers, who produce 42% of apparel and 69% of footwear purchased in the United States.”

— From Singh's article.

Annotate exam questions properly

Want to do better in exams? Here’s the easiest way to improve: do a thorough job of annotating the question.

Exams can be stressful situations. You need to maximise your chances of success in a tough environment.

So, spend some time and break each question down.

What do I mean?

Here’s an example of how I annotated a subsidy question from the 2016 NSW Economics HSC Examination (Q21, part a). Link to exam and marking guide.

On first look, I was confused. Every time I bring it up in class, the students are confused. So, after many instances of confusion, I decided to record a video on HOW I would annotate it properly — see below.

When you annotate, use the following principles:

• What the key terms in the question?

• What do I know about the question?

• What do I know about the question that is relevant?

• What are some traps or pitfalls in the question?

You can (and SHOULD) annotate every type of question.