To separate mechanism from endorsement, write what the measure does to costs, prices and customers, and leave out whether it is fair or wise. The reasoning is worth the marks, not the opinion.
This lesson sits in external business conditions, where government actions are part of a firm’s environment. The same neutral approach applies to any measure a case describes.
What is the idea behind it?
A mechanism is a chain: “because X, then Y, which means Z for the firm”. It can be checked against the case, and it works for a reader of any political view.
An endorsement is a verdict: “this is good”, “this is unfair”. A verdict may be sincere, but it is not evidence about the firm, and it cannot be marked as analysis.
How do you work through it?
- State the measure exactly as the case describes it.
- Trace the first effect on cost, price or demand, with a figure if available.
- Trace the second effect on the firm’s profit or its competitors.
- Name who gains and who loses, in neutral words.
- Judge against the firm’s objective or the question’s wording, and say what evidence is missing.
Worked example
In a fictional case, the government raises import duty on tiles from 0% to 10%. Jubin Tiles Sdn Bhd in Johor Bahru imports tiles at RM20 per square metre and sells them at RM30.
It sells 5,000 square metres a month. A local maker, Bata Seramik, sells similar tiles at RM28.
Step 1, the measure: duty of 10% is added to the import price.
Step 2, first effect: duty is 20 × 0.10 = RM2, so the cost rises from RM20 to RM22 per square metre. Profit per square metre falls from RM10 to RM8. Over 5,000 square metres, monthly profit falls from RM50,000 to RM40,000, which is RM10,000 less.
Step 3, second effect: if Jubin Tiles passes the whole RM2 on, its price becomes RM32, which is RM4 above Bata Seramik. Before the duty the gap was RM2. If customers care mainly about price, some may move to the local maker.
Step 4, who gains and loses: the importer faces higher costs, the local maker may win customers, and buyers of imported tiles may pay more or switch. The government may collect duty revenue, though the case gives no figure.
Step 5, judgement: the duty lowers Jubin Tiles’ profit unless it can raise its price without losing sales. The case does not say how customers would react, so a firm conclusion needs that evidence.
Notice that nothing in these steps says whether the duty is right. The ratios tool can show how the margin on each square metre changes.
The mistake to watch for
Mistaken answer: “The duty is unfair on importers, so Jubin Tiles will lose customers and close.”
The student gave a verdict and then predicted an outcome the case does not support.
Correction: “The duty raises Jubin Tiles’ cost by RM2 per square metre, which reduces monthly profit by RM10,000. It may lose customers to Bata Seramik if it raises its price, but the case does not say how many.” Same topic, no verdict, and every claim is traceable.
Check yourself
1. Which of these is a mechanism and which is an endorsement? (a) “The duty protects Malaysian jobs, so it is right.” (b) “The duty raises the importer’s cost, so its margin falls.” (c) “The duty is a bad idea.”
Show answer
(b) is a mechanism. (a) and (c) are endorsements. Part of (a) mentions jobs, but it gives no chain or figure, and the conclusion “it is right” is a verdict.
2. A duty of 5% is added to an import priced at RM40. Find the extra cost per unit, and for 1,000 units.
Show answer
Per unit: 40 × 0.05 = RM2. For 1,000 units: RM2,000.
3. Rewrite “The duty is unfair to importers” as a mechanism using the Jubin Tiles figures.
Show answer
“The duty raises Jubin Tiles’ cost by RM2 per square metre, so its profit falls by RM10,000 a month unless it raises its price.” Any wording that keeps the chain and the figures is fine.
Where this leads next
Put all five skills together in the external business conditions practice set. For a wider view of case answers, see case analysis and evaluation.
Moving from opinion to evidence is a skill our teachers rehearse with students in online one-to-one Business tuition.