The Marshall Lerner condition is concerned with the likelihood of successfully removing a trade balance deficit (exports less than imports) through a change in the exchange rate.

If the exchange rate was to devalue (decrease in value so exports became more price competitive) then the relative price of exports and imports would change. The price of exports would fall relative to other countries, therefore, the quantity of exports will increase. The relative price of imported goods will increase, therefore, the demand will decrease. The outcome is that the trade balance will improve.

The Marshall-Lerner condition states that a devaluation of the currency will only cause a trade balance surplus in the short run if the combined price elasticity of demand and price elasticity of supply are greater than 1. If they are not, then the devaluation will reduce the size of the trade deficit but not remove it.