If the sum of elasticities of demands for both imports and exports is less than 1,then:
A) the Marshall-Lerner condition is met and trade balance improves.
B) the Marshall-Lerner condition is met and trade balance decreases.
C) the Marshall-Lerner condition is not met and trade balance improves.
D) the Marshall-Lerner condition is not met and trade balance decreases.

Question

Quizplus · Accepted Answer

The Marshall-Lerner condition states that for a devaluation (or depreciation) of a currency to improve a country's trade balance, the sum of the price elasticities of demand for imports and exports must be greater than one. If the sum is less than one, the condition is not met, and the trade balance is likely to worsen, not improve.

If the Sum of Elasticities of Demands for Both Imports