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- Marshall–Lerner_condition abstract "The Marshall–Lerner condition (after Alfred Marshall and Abba P. Lerner) refers to the condition that an exchange rate devaluation or depreciation will only cause a balance of trade improvement if the absolute sum of the long-term export and import demand elasticities is greater than unity. If the domestic currency devalues, imports become more expensive and exports become cheaper due the change in relative prices. Initially, there will be a deterioration of the trade balance which can be attributed to lags in recognition of the changed situation, lags in the decision to change real variables, lags in delivery time, lags in replacement of inventories and materials and lags in production. These lags ensure that the demand for exports remains inelastic in the short term. In the long-term though, when the prices become flexible, there will be a positive quantity effect on the balance of trade because domestic consumers will buy fewer imports and foreign consumers will buy more of our exports; but offsetting this is a negative cost effect on the balance of trade, since the relative cost of imports will be higher. Whether the net effect on the trade balance is positive or negative depends on whether or not the quantity effect outweighs the cost effect; if the quantity effect is greater, then it is said that the Marshall–Lerner condition is met. Essentially, the Marshall–Lerner condition is an extension of Marshall's theory of the price elasticity of demand to foreign trade.Formally, the condition states that, for a currency devaluation to have a positive impact on trade balance, the sum of price elasticity of exports and imports (in absolute value) must be greater than 1. The net effect on the trade balance will depend on price elasticities. If goods exported are elastic to price, their quantity demanded will increase proportionately more than the decrease in price, and total export revenue will increase. Similarly, if goods imported are elastic, total import expenditure will decrease. Both will improve the trade balance.Empirically, it has been found that trade in goods tends to be inelastic in the short term, as it takes time to change consuming patterns and trade contracts. Thus, the Marshall–Lerner condition is not met, and a devaluation is likely to worsen the trade balance initially. In the long term, consumers will adjust to the new prices, and trade balance will improve. This effect is called the J-curve effect. For example, assume a country is a net importer of oil and a net producer of ships. Initially, the devaluation immediately increases the price of oil, and as consumption patterns remain the same in the short term, an increased sum is spent on imported oil, worsening the deficit on the import side. Meanwhile, it takes some time for the shipbuilder's sales department to exploit the lower price and secure new contracts. Only the funds acquired from previously agreed contracts, now devalued by the currency devaluation, are immediately available, again worsening the deficit on the export side.".
- Marshall–Lerner_condition wikiPageID "2021321".
- Marshall–Lerner_condition wikiPageLength "6291".
- Marshall–Lerner_condition wikiPageOutDegree "17".
- Marshall–Lerner_condition wikiPageRevisionID "688784870".
- Marshall–Lerner_condition wikiPageWikiLink Abba_P._Lerner.
- Marshall–Lerner_condition wikiPageWikiLink Absolute_value.
- Marshall–Lerner_condition wikiPageWikiLink Alfred_Marshall.
- Marshall–Lerner_condition wikiPageWikiLink Balance_of_trade.
- Marshall–Lerner_condition wikiPageWikiLink Category:International_economics.
- Marshall–Lerner_condition wikiPageWikiLink Category:International_trade.
- Marshall–Lerner_condition wikiPageWikiLink Currency.
- Marshall–Lerner_condition wikiPageWikiLink Devaluation.
- Marshall–Lerner_condition wikiPageWikiLink Elasticity_(economics).
- Marshall–Lerner_condition wikiPageWikiLink Export.
- Marshall–Lerner_condition wikiPageWikiLink Import.
- Marshall–Lerner_condition wikiPageWikiLink J_curve.
- Marshall–Lerner_condition wikiPageWikiLink Price_elasticity_of_demand.
- Marshall–Lerner_condition wikiPageWikiLink Relative_price.
- Marshall–Lerner_condition wikiPageWikiLinkText "Marshall–Lerner condition".
- Marshall–Lerner_condition wikiPageUsesTemplate Template:Cite_journal.
- Marshall–Lerner_condition wikiPageUsesTemplate Template:Reflist.
- Marshall–Lerner_condition subject Category:International_economics.
- Marshall–Lerner_condition subject Category:International_trade.
- Marshall–Lerner_condition type Redirect.
- Marshall–Lerner_condition type Relation.
- Marshall–Lerner_condition comment "The Marshall–Lerner condition (after Alfred Marshall and Abba P. Lerner) refers to the condition that an exchange rate devaluation or depreciation will only cause a balance of trade improvement if the absolute sum of the long-term export and import demand elasticities is greater than unity. If the domestic currency devalues, imports become more expensive and exports become cheaper due the change in relative prices.".
- Marshall–Lerner_condition label "Marshall–Lerner condition".
- Marshall–Lerner_condition sameAs Q1739376.
- Marshall–Lerner_condition sameAs Marshall-Lerner-Bedingung.
- Marshall–Lerner_condition sameAs Teorema_Marshall-Lerner.
- Marshall–Lerner_condition sameAs Condition_de_Marshall-Lerner.
- Marshall–Lerner_condition sameAs Condizione_di_Marshall-Lerner.
- Marshall–Lerner_condition sameAs マーシャル・ラーナー条件.
- Marshall–Lerner_condition sameAs Warunek_Marshalla-Lernera.
- Marshall–Lerner_condition sameAs m.06fpnp.
- Marshall–Lerner_condition sameAs Условие_Маршалла_—_Лернера.
- Marshall–Lerner_condition sameAs Điều_kiện_Marshall-Lerner.
- Marshall–Lerner_condition sameAs Q1739376.
- Marshall–Lerner_condition sameAs 馬歇爾-勒納條件.
- Marshall–Lerner_condition wasDerivedFrom Marshall–Lerner_condition?oldid=688784870.
- Marshall–Lerner_condition isPrimaryTopicOf Marshall–Lerner_condition.