← A Level Economics Revision · All J-curve questions · Home

A-Level Economics · J-curve diagram question

What exactly does the MARSHALL-LERNER condition require?

▶ Try it in the game first

The diagram

The answer

PEDx + PEDm > 1 — the price elasticities of demand for exports and imports must SUM to more than one. PEDx + PEDm > 1 is the condition to write down. With elastic demand you cut the price to GAIN revenue — which is exactly what a depreciation does to exports. Marshall-Lerner: PEDx + PEDm > 1. The proportional RISE in quantity must beat the proportional FALL in export price for export revenue to rise, and import demand must respond enough for import expenditure to fall. Picture the price-times-quantity boxes: if the export price falls 50% and quantity rises only 10%, the new box is smaller — revenue falls, and the depreciation deepens the deficit.

Test yourself properly

This is one of 6 questions on the j-curve diagram — every corner lettered, every wrong answer diagnosed.

▶ Play the j-curve game All questions & answers