Question

Write short notes on the following:

1. Marshal Lerner condition
2. J – curve    
3. Non tariff barriers

Answer 1

A - Marshal Lerner condition -

Marshal Lerner condition states that the changes in the exchange rate by the country will either cause an improvement or will worsen the balance of payments. It states that the devaluation in the exchange rate of the currency will have the favorable effect on the BOP of the country of the if the price elasticity of demand for the import and the exports of the country is GREATER THAN 1. For its calculation the price elasticity of demand for the exports and the imports are added up to get the total elasticity.The elasticity of 1 will have no change in the BOP of the country.

B - J -CURVE-

J curve is the phenomenon of the Balance of trade of the country in which at the initial level the trade conditions of the country are not favorable and hence due to the downfall in the trade there is devaluation in the currency of the country and the curve becomes hollow at the bottom.The exports become very cheap. But subsequently the market conditions improve and due to the flourishment of the trade the market and the balance of trade rises and there is upward movement in the J curve causing improvement in the value of the currency.

C - NON TARIFF BARRIERS -

These are the barriers which are imposed to restrict the trade without the aid of the monetary tariffs. The restrictions are imposed in terms of quotas and other levies than tariffs. They still have the meaningful impact on the trade of the country without the aid of tariffs and are mostly used in international trade. These can be used together with or in absence of the standard tariffs.