ECON6023 · International Trade
Exam Revision: Past-Paper Masterclass
Week 13 consolidates the whole unit by working full past-exam questions end to end — a DFS derivation with a productivity shock, a Krugman (1980) firm-size and welfare derivation, and a large-country tariff-welfare calculation. The emphasis is exam technique from the markers' own advice: show every derivation step, label all diagrams, and keep applied answers to about 200-250 words.
What this chapter covers
- 01The three-question exam shape: two theory derivations (Ricardian/DFS/Krugman) plus one applied trade-policy question
- 02Marks vary by year (for example a 25/25/10 split); budget time in proportion to marks
- 03Theory technique: derive CES/Cobb-Douglas demand from the Lagrangian before quoting any result
- 04DFS revision: intersect A(z') and B(z'), then run a comparative static (size or productivity shock)
- 05Krugman revision: markup → free-entry firm size → number of varieties → welfare in market size
- 06Trade-policy revision: small- vs large-country tariff welfare with lettered areas; the prohibitive-tariff and terms-of-trade checks
- 07The marking rule: correct answers without derivation score poorly; label every diagram
- 08Coverage exclusions to skip: Eaton-Kortum (2002) and Global Value Chains are not examined
Large-country import tariff: terms-of-trade gain vs deadweight loss
- +1Quantities. At the free-trade price 10: D = 80, S = 10. At the domestic price 12: D = 100 − 24 = 76, S = 36 − 20 = 16. Imports with the tariff M₂ = 76 − 16 = 60. The tariff t = domestic − foreign price = 12 − 8 = 4 ✓.
- +1Consumer and producer surplus. The domestic price rises 10 → 12. ΔCS = −½(80 + 76)(2) = −156. ΔPS (area a) = ½(10 + 16)(2) = +26.
- +1Government revenue and its split. Revenue = t × M₂ = 4 × 60 = 240. This splits into area c = (domestic − free-trade price) × M₂ = (12 − 10)(60) = 120 and the terms-of-trade rectangle e = (free-trade − foreign price) × M₂ = (10 − 8)(60) = 120, paid by foreigners.
- +1Deadweight loss. b (production loss) = ½(16 − 10)(12 − 10) = ½(6)(2) = 6; d (consumption loss) = ½(80 − 76)(12 − 10) = ½(4)(2) = 4; so b + d = 10.
- +1Net welfare. Net = ΔCS + ΔPS + revenue = −156 + 26 + 240 = +110, which equals e − (b + d) = 120 − 10 = +110. The large country GAINS because the terms-of-trade gain e = 120 exceeds the deadweight loss of 10.
Key terms
- Terms-of-trade gain
- The rectangle e in a large-country tariff, equal to the fall in the foreign price times the volume of imports — revenue effectively paid by foreigners. It can make a large country's net welfare change e − (b + d) positive.
- Net welfare change (large country)
- e − (b + d): the terms-of-trade gain minus the deadweight loss. Positive when e exceeds b + d, which is why a large country (unlike a small one) can gain from a tariff.
- Revenue decomposition (c + e)
- A large-country tariff's revenue t × M splits into area c (the domestic price rise times imports, paid by home consumers) and area e (the foreign price fall times imports, paid by foreigners).
- Marking rule (show your work)
- The unit's stated exam standard: derivations must be shown in full and diagrams labelled; a correct final answer without the working scores poorly. Applied answers should run to about 200-250 words.
- Three-question exam shape
- The final has two theory derivations (from the Ricardian, DFS and Krugman models) and one applied trade-policy question, with marks varying by year (for example 25/25/10).
- Coverage exclusions
- Eaton-Kortum (2002) and Global Value Chains are explicitly outside the final-exam coverage, so revision time is better spent on the core derivations and trade-policy welfare.
Exam Revision: Past-Paper Masterclass FAQ
How should I split my time in the ECON6023 exam?
In proportion to marks. The paper has three questions and the split varies by year (for example 25/25/10), so allocate writing time to match — do not sink half the exam into a 10-mark applied question. Because the marking rule rewards shown derivations, budget enough time to write each theory question's steps in full and to label the trade-policy diagram, and keep applied answers to about 200-250 words rather than over-writing.
What is the single most common way to lose marks?
Writing a correct final answer without the derivation. The unit is explicit that answers without working score poorly, so on the theory questions you must derive CES/Cobb-Douglas demand from the Lagrangian, intersect the DFS curves, or chain the Krugman markup and free-entry conditions on the page. On the applied question, label every area (a-e) and show signed values. A close second is forgetting the prohibitive-tariff or terms-of-trade check.
Can AI help me revise past exam questions?
Yes. Sia can work a full past-style DFS, Krugman or tariff-welfare question with you, checking each derivation step and diagram, and then set fresh questions in the same shape with new numbers. It explains the method and checks your reasoning; it does not do graded assessment, and USyd academic-integrity rules apply. Pair it with the unit's own Week 13 revision session on Canvas.
Which topics can I safely deprioritise for the final?
Eaton-Kortum (2002) and Global Value Chains are explicitly not examined, so the offshoring chapter is best treated as light discussion. Concentrate revision on the derivation-heavy core — Ricardian real wages, the DFS A(z)/B(z') solve, the Krugman firm-size and welfare chain — and the small- and large-country tariff-welfare geometry, which together carry the theory and applied questions. Always confirm the coverage on Canvas.
Exam move
Revise by working full past-style questions to time, not by re-reading notes: do one DFS solve with a comparative static, one Krugman firm-size-and-welfare derivation, and one tariff-welfare calculation (a small-country loss and a large-country gain on the same market, so the terms-of-trade flip is vivid). Rehearse writing every derivation step, because the marking rule penalises answers without working, and practise labelling trade-policy diagrams with areas a-e and signed values. Time each question to its marks (the split varies by year), keep applied answers to about 200-250 words, and skip the exam-excluded Eaton-Kortum and GVC material. The final sits in the University of Sydney Semester 1, 2027 formal examination period (around June 2027) — confirm the exact date, time and room on Canvas and the USyd exam timetable.
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