Social Science (087) — AI-generated practice question

When cheaper imported goods enter a domestic market, they compete with locally produced goods. Buyers now have a choice between the two, and prefer the cheaper imported goods. This forces domestic producers to lower their prices to remain competitive.

As a result, prices of similar goods in the two markets tend to become equal — a process called price equalisation.

Role of Market Integration: Foreign trade connects markets of different countries. Goods travel from one market to another, increasing choice and equalising prices. This linking of markets across countries is called integration of markets, which is the foundation of globalisation.

Example: Chinese toys entered India at lower prices, forcing Indian toy prices to fall, thus integrating the toy markets of both countries.

Source: Foreign Trade and Integration of Markets, Chapter 4

---

• Examiners expect: (1) how cheaper imports create competition → price falls domestically, (2) definition/role of market integration, (3) a brief example (Chinese toys is ideal here as it is straight from the textbook).
• The phrase "prices of similar goods in the two markets tend to become equal" is direct textbook language — use it exactly.
• Do not confuse market integration with globalisation; integration of markets leads to globalisation, not the other way around.
• For 3 marks: one point on price equalisation mechanism + one point on market integration + one supporting example is the ideal structure.