2. Marshall-Lerner effect of a depreciation (or devaluation) BT = PX *X - EPM*M Let's approximate the elasticities in this example: em = %change in M / % change in PM = [( )/ ]/ [(2-1)/ 1-5] = The elasticity of export supply is the elasticity of foreign import demand for our good. To calculate it we must convert the domestic price of export into F C ex = %change in X / % change in Px/E = [( )/ ] / [(-5-1)/-75] = The sum of the 2 absolute values is