Consider the case where supply curves are infinitely elastic

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Consider the case where supply curves are infinitely elastic

Consider the case where supply curves are infinitely elastic

Question
Consider the case where supply curves are infinitely elastic. Suppose as well that n=n*=.6. Does the Marshall-Lerner condition hold? Why or why not? Suppose that the home country begins in a situation where imports equal $800 million while exports equal $400 million. If the trade elasticities shown above continue to hold, will a devaluation lead to an improvement in the home country’s current account balance? Why or why not? Derive and explain.

Consider the case where supply curves are infinitely elastic

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