ABSTRACT
This chapter looks at the considerations that a firm has to take into account when responding to devaluation. We confine our attention to the simple case where a firm exports its total output to one export market, and look at what happens in the four types of market situation most usually discussed by economists. These are: perfect competition, monopoly, monopolistic competition and oligopoly. Elasticity of demand is a technical economic concept which measures the responsiveness of the demand for a product to a change in its price. A firm selling under monopolistic competition faces a large number of competitors, as does one seller in perfect competition. The British firm would then be able to reduce foreign-currency prices without causing retaliation and so be able to gain market share. Where most firms in the industry are foreign, and where the world price is set in foreign currency, that world price is unaffected by devaluation.
