Problem
1. While the recognition of economies of scale may make trade theory more "realistic," what does this recognition do to the ability of trade theory to predict the commodity trade patterns of countries? Explain.
2. Ignoring the mathematics, explain the operation of the Krugman model in economic terms, and indicate the principal lessons of it.
3. Why is an increase in the number of varieties of a good regarded as a gain from trade? Can you think of economic disadvantages associated with greater product variety? Explain.