Figure 14.4 N 2 manufacturing firms N 2 varieties (elasticity  ) internal returns to scale monopolistic competition N 1 manufacturing firms N 1 varieties (elasticity  ) internal returns to scale monopolistic competition Farms in 1Farms in 2 Spending 1-  m mm Manufacturing workers in 2 Farm workers in 2 Consumers in 2 Farm workers in 1 Consumers in 1 Income Spending (goods) (farm labor) (labor) Income (labor) Income Spending on manufactures Spending on food Income (farm labor) Spending on food 1-  m mm Spending on manufactures (goods) T a c b d e f Direction of (goods and services flows) Direction of money flows Mobility ( i ) g Manufacturing workers in 1

Laborers in the manufacturing sector in region 2; 2  m L Laborers in the manufacturing sector in region 1; 1  m L Laborers in the food sector in region 1;  1 (1-  m )L Laborers in the food sector in region 2;  2 (1-  m )L Laborers in the food sector (1-  m )L Laborers in the manufacturing sector;  m L Total number of laborers; L (1-  m ) mm 11 22 1 2 Note:  1 +  2 = 1Note: = 1 Mobility

Sustain points Break point Transport costs T Stable equilibria Unstable equilibria B S0S0 S1S1 Basin of attraction for spreading equilibrium Basin of attraction for agglomeration in region 1 Basin of attraction for agglomeration in region 2 Figure 14.9

Foreign Direct Investment Greenfield InvestmentsMergers and Acquisitions (M&A) MergersAcquisitions Full acquisition (100%) More than 50% acquistion 10% - 49% acquisition 22%78% 3% of M&A97% of M&A 65% of M&A15% of M&A16% of M&A Figure 15.3

Headquarters in Austria Headquarters in Bolivia Firm level fixed costs Fw A Firm level fixed costs Fw B Plant level fixed costs Gw A Plant level fixed costs Gw B Plant level fixed costs Gw A Plant level fixed costs Gw B + Multi-plant production? m B ; multinational firm, headquarters in Bolivia MC in A = cw A MC in B = cw B m A ; multinational firm, headquarters in Austria MC in A = cw A MC in B = cw B n B ; national firm, headquarters in Bolivia MC in A = (c+t)w B MC in B = cw B n A ; national firm, headquarters in Austria MC in A = cw A MC in B = (c+t)w A Multi-plant production? + yes no Headquarter location

Figure 15.9

labor capital OAOA OBOB Austria large Bolivia small Austria small Bolivia large Austria capital abundant Bolivia labor abundant Austria labor abundant Bolivia capital abundant C Figure 15.10

Endowment of labor Endowment of capital OAOA OBOB a. Base scenario National firms only Mixed regimes Multi- national firms only Figure 15.11a

Endowment of labor Endowment of capital OAOA OBOB b. Smaller countries; 40% National firms only Mixed regimes Multi- national firms only Figure 15.11b

Substrate Media Motors Head-Stack Assembly Head- Gimbal Assembly Head Fabrication Semiconductors PCB Stuffing and Other Electronics Assembly Head-Disk Assembly Final Assembly Testing Component Fabrication Activities Subassembly Activities Final Assembly Activities Figure 15.12

good X good Y A B ppf Figure 16.2

Number of varieties quantity q N t = 0 N t = 1 Figure 16.3

Figure 16.4

Food Manufactures Pr A Pr B CACA CBCB ppf A ppf B slope = - p m /p f Figure 17.2

Figure 17.3 C C AA quantity demand supply price q0q0 q1q1 q4q4 q3q3 q2q2 p0p0 p 0 (1+t 0 ) imports with free trade imports with tariff t 0 p 0 (1+t 1 ) imports with tariff t 1 q5q5 BB

quantity price demand Dupuit triangle q p q max p max O A Figure 17.6

quantity price demand Dupuit triangle q0q0 p q max p max O E0E0 p+t E1E1 Harberger triangle q1q1 Figure 17.7