Final answer:
The foreign price effect justifies setting lower prices in the home market than in the international market by making goods relatively more competitive.
Step-by-step explanation:
The justification for setting prices lower in the home market than in the international market is determined by the foreign price effect.
When prices increase in the United States while remaining fixed in other countries, goods in the United States become relatively more expensive compared to goods in the rest of the world.
This can lead to a decline in U.S. exports as they become relatively more expensive, while the quantity of imports from abroad increases as they become relatively cheaper.
Thus, setting lower prices in the home market helps to remain competitive in the international market by stimulating exports and reducing the net expenditure on imports.