1. Suppose that on Euro can be exchanged for 1.3 U.S. dollars and that one U.S. dollar can be exchanged for 80 Japanese yen. If these currencies can be traded freely with low transaction costs, what exchange rate would you expect between the Euro and Japanese yen? Dexcribe the transactions that would occur if the Euro-yen exchange rate is higher than this amount?
2. A government is considering a quota and a tariff, both of which will reduce imports by the same amount. Why might the government prefer on these policies over the other?