An unfavorable shift in trade balance can initially occur due to currency depreciation because of what effect?

The J-Curve Effect describes a situation where a country's trade balance initially worsens following a depreciation of its currency before it eventually improves. This occurs because a currency depreciation makes exports cheaper and imports more expensive over time, but the adjustments do not happen instantaneously.

When a currency depreciates, the immediate response in the trade balance may show a decline because the prices of imports rise quickly, while the quantities of exports may not react as rapidly. Exporters in international markets may not instantly increase their sales since existing contracts, demand elasticity, or other market conditions can delay the immediate impact of more favorable export prices. Conversely, the higher prices for imports can cause a more immediate adverse effect on the trade balance, as consumers and businesses continue purchasing imports at the new higher prices before any noticeable switch occurs toward domestically produced goods.

Over time, as the quantities of exports increase due to their lower prices and competitiveness increases, and as imports may eventually decrease due to higher costs, the trade balance starts to improve. This delayed response captures the essence of the J-Curve Effect, explaining the initial lack of positive reaction to the currency depreciation, followed by a gradual improvement in the trade balance.

In contrast, the other choices relate to different economic concepts that do not accurately capture