1. Imposing quotas on international free trades creates a shortage of the commodities being limited from entering the country. The demand for this products will rise and so are the prices.
On the other hand, when higher tariffs are imposed on imported commodities, domestic producers will benefit because the government protects them from cheap imports meaning they will receive higher prices for their products.
However, when quotas and tariffs are imposed, an equilibrium of consumer demands and suppliers' demands will not balance. Since the consumers are many than producers, a net welfare loss will be made.
2. The US dollar would appreciate over the Mexican peso if the products exported to Mexico from the US are in higher demand. This means that the Mexicans will require the US dollar to purchase the product. The other reason for appreciation is when the demand of the US dollar is higher in the foreign exchange than the Mexican peso.
Reason for depreciation includes low demand for US exports compared to Mexican exports. This implies that the Mexican peso will be in demand since people will need their currency to purchase the products. The other reason is when the global economy negatively affects the US dollar making it depreciate and positively affects the Mexican peso making it appreciate.
3. Game theory is a strategic model for decision making that is mostly used by competing parties or organizations. The theory implies that a party that makes better decisions will benefit while the others perish.
Regarding oligopolies, the few firms that dominate the market usually make decisions that will hurt other competing firms within the industry. Therefore, new firms will rarely succeed the stiff competition set by the existing firms. A new company can only establish itself by acquiring protection from the government or having an extensive source of the capital.
4. Consumer surplus can be defined as an estimate of benefits enjoyed by the consumers. Consumer surplus is measured by obtaining the difference between the value that the consumers are able and willing to pay for the products and the total value that they can afford to pay.
Consumer surplus can be used to explain the price elasticity of demand such that when the demand is elastic it is 0 and when the demand is inelastic it is infinite. Moreover, consumer surplus can be used to explain changes of prices in the market
5. The difference is that the costs of commodities in perfect competition is beyond the control of firms or individuals in the market, but in monopolistic competition, firms agree to set the market price of the products. They are similar in the sense that in both types of competition there are a lot of buyers and sellers.
In perfect competition, the consequence is that sellers can't change the prices according to the demand and hence low profitability might occur especially when the price rates are low. This can also lead to inflation. When the prices are high, buyers will make law purchases or prefer to use substitute products, and this may lead to decreased economic growth.
In monopolistic competition, firms might set the prices too high and hence oppressing the consumers.
