(e) Firms that produce homogenous products must be perfectly competitive. 2. Short Answer Questions (20 points) (a) Explain the major difference between the Krumgan Model demand system and the Armington Model de- mand system: (b) What are the two major empirical contradictions and cannot be explained by the comparative advantage theories (neo-classical models)? (c) In the new trade theory, what is the new channel of gains from trade from the consumer's perspective? (d) Provide real-life examples for intra-industry and inter-industry trade. (e) What are the three building blocks for the New Trade Theory? 1