Standard trade model. Developed countries (Canada) have been major exporters in the auto industry. Today, countries in Asia (Thailand) are becoming top exporters and this change lowered auto prices relative to food prices. Note, the auto industry is capital intensive.

1. Using autos and food as tradable goods, create a standard trade model for Canada that shows changes in welfare and TOT. Use graphs.
2. If the substitute effect dominates this change, show the new consumption point. Show graphically.

3. What is the welfare and TOT effect of the capital stock increase in Canada?