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Assuming initially £1=$2

Exports Px £100 QDx1 500 Export Revenue £50,000

Imports Pm1 £50 QDm1 1000 Import Spending £50,000

Trade Balance = £0

After a 10% depreciation of the £

Assuming PEDx = -0.4 %ΔQDx = +4% QDx2 = 520 Price in domestic currency is unchanged Export Revenue £52,000

Marshall Lerner Condition Not Satisfied (Sum of elasticities <1) Assuming PEDm = -0.5 %ΔQDm = -5% Pm2 = £55 QDm2 = 950 Import Spending = £52,250

Trade balance = -£250

Marshall Lerner Condition Satisfied (Sum of elasticities >1) Assuming PEDm = -0.7 %ΔQDm = -7% Pm2 = £55 QDm2 = 930 Import Spending = £51,150

Trade balance = +£850

So far so good... now for my problem

Marshall Lerner Condition ????? (Sum of elasticicities = 1) Assuming PEDm = -0.6 %ΔQDm = -6% Pm2 = £55 QDm2 = 940 Import Spending = £51,700

Trade balance = +£300

In this case if the sum of the elasticities equals 1, there has been an improvement in the trade balance, but I would have expected the trade balance to have been unchanged.

Keeping the PED of exports the same at -0.4, and setting the PED of imports to -0.55, the Marshall Lerner condition is not satisfied (0.4+0.55 < 1), but yet yields an improvement in the trade balance:

Assuming PEDm = -0.55 %ΔQDm = -5.5% Pm2 = £55 QDm2 = 945 Import Spending = £51,975

Trade balance = +£25

What am I doing wrong in my calculations? Or, if I am not doing something wrong can someone explain what is going on!

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