At the start of this unit, we discussed the decision by many clothing companies to outsource production to Bangladesh and other low-wage economies. Show your results in a single diagram.

1. Draw the best response curve of the workers in the high-wage home country in the absence of outsourcing (with the wage on the horizontal axis, and effort on the vertical axis).

2. In the same diagram show the best response curve of workers in the foreign low-wage country in the absence of outsourcing. (Assume that wages are measured in dollars in both cases.)

3. Show in your diagram what the home country employer will pay home country workers if outsourcing is not possible.

4. Show in your diagram what the home country employer will pay workers in the low-wage country if it switches production there (ignore the costs of moving production).

5. Now assume that outsourcing is possible and is widely practiced by many firms in the clothing industry. Show the best response function for home country workers under these conditions. Explain why this is different from your answer to 1. Show these outcomes in a diagram.