1. Outsourcing & Product Fragmentation

2. Figure 8.1 Comparative and Absolute Advantage

3. Figure 8.2 Costs and Fragmentation

4. 1/w 1/r L K -w/r Isocost Line C = $1

5. F=1/p F C=1/p C 1/w 1/r L K -w/r

6. Figure 6.5 Unit-Value Isoquants

7. F=1/p F C=1/p C 1/w 1/r L K -w/r H G B F A

8. F=1/p F C=1/p C 1/w 1/r L K -w/r H B F C=1/p' C 1/w' 1/r' w'/r' Increase in the Price of Cloth

9. 1/w 1/r L K k B A Indicated prices infeasible with this endowment of capital and labor Indicated prices feasible for all endowments within the cone Diversification Cone

10. Hammer Production HANDLE HEAD

11. Hammer Production HANDLE HEAD HAMMERS = min{heads,handles}

12. Hammer Production HANDLE HEAD HAMMERS = min{heads,handles} heads = min{L,0.5K} handles = min{0.5L, K}

13. heads = min{L,0.5K} handles = min{0.5L, K} 123 1 2 3 1 head 1 handle 1/2 head 1/2 handle Hammer Production K L

14. HANDLE HEAD HAMMERS = min{heads,handles} heads = min{L,0.5K} handles = min{0.5L, K}

15. heads = min{L,0.5K} handles = min{0.5L, K} 123 1 2 3 1 head 1 handle 1/2 head Hammer Production K L HAMMERS = min{heads,handles}  H = min{1/3L,1/3K}

16. heads = min{L,0.5K} handles = min{0.5L, K} 123 1 2 3 1 head 1 handle Hammer Production K L HAMMERS = min{heads,handles}  H = min{1/3L,1/3K} 1 hammer

17. Figure 8.3 Fragmentation in Industry 2

18. Figure 8.4 Fragmentation and a Higher Wage Rate

19. Suppose, in Fig 8.3, that this country has an advantage, relative to the rest of the world, in producing the labor-intensive fragment, B, instead of the capital- intensive fragment A, so that after world prices adjust to separate fragments becoming tradable on the world market, it is fragment B that survives, and not A.Show how a revision of Fig 8.4 could still result in an increase in real wages for a capital-abundant country.

20. B’