Krugman writes that in the decade before his article “Is free trade passé?” International trade theory has undergone a radical shift from the traditions of constant returns and perfect competition to include new models that emphasize increasing returns and imperfect competition (1987, p. 131). Comparative advantage is no longer accepted as a means of fully explaining what actually happens in trade, and extraneous factors mean that free trade may not be in the best interests of individual nations. Krugman answers the question posed in the article's title by saying that free trade is not outdated, but it is better to use it as a guiding principle rather than a standard rule. This article will examine theories that challenge the assumptions of constant returns and perfect competition, as well as discuss the implications for classical business optimism and business policies and practices. Krugman defines comparative advantage as “the idea that countries trade to take advantage of their differences.” " (1987, p. 132). Theories of comparative advantage assume constant returns to scale and perfect competition. Krugman writes that trade exists when countries differ in the goods they have to offer, in technology, or in equipment of factors. Although there are multiple models that explain the causes of trade, each differs in the factors included to explain why trade occurs. Economist Ohlin and authors Burenstam-Linder and Vernon began to introduce counterpoints to advantage compared as early as the late 1950s, stating that formal models of comparative advantage did not take into account all factors influencing international trade. International specialization and trade caused by increasing returns, as well as economies of scale and technology.... .. half the paper...... of their country, but allowing small groups to benefit while the majority is negatively affected or not has had no impact. While free trade has certainly changed with advances in technology and the ability to create external economies, the concept appears to be the most favorable way for countries to trade with each other. Whereas imperfect competition and increasing returns challenge the concept of comparative advantage in modern international trade markets, the resulting introduction of government policies to regulate trade appears to result in increased tensions between countries as individual nations seek to gain advantages at to the detriment of others. While classic business optimism may be somewhat naïve, the alternatives are risky and potentially harmful. ReferenceKrugman, P. (1987). Is this a free trade pass? The Journal of Economic Outlook, 1(2), 131-144.