Key Points:

• Elasticity Requirement: For the trade balance to improve, the demand response to price changes in both exports and imports must be strong enough (i.e., elastic).
• Impact of Currency Depreciation: When a currency depreciates, exports become cheaper for foreign buyers, and imports become more expensive for domestic consumers.
• Trade Balance Improvement: If the demand for exports and imports is elastic, the increase in export revenue and reduction in import spending will outweigh the initial costs, improving the trade balance.

In essence, the Marshall-Lerner Condition states that currency devaluation benefits the trade balance only if the demand for goods and services is responsive enough to changes in price.