Concept:Devaluation can improve a balance of payments deficit only when the demand for exports is responsive to price changes.
Explanation:Devaluation makes a country's exports cheaper for foreign buyers.
If demand for exports is elastic, the quantity demanded increases more than proportionally to the price fall.
This leads to higher total export earnings, which helps correct the deficit.
If exports have inelastic demand, cheaper prices do not attract many additional buyers, so export earnings may not improve.
Therefore, exports must have elastic demand for devaluation to work.
Answer:C. exports have elastic demand.