Question

The economic principle of ______ says that when there are two houses in the same neighborhood with the same size, appeal, and utility, the lower-priced one will tend to sell first.

Answer 1

The economic principle of substitution says that when there are two houses in the same neighborhood with the same size, appeal, and utility, the lower-priced one will tend to sell first.

The economic principle of substitution

• According to the principle of substitution, the cost of purchasing a substitute that is just as desired tends to establish the upper limit of value, assuming no inopportune delays.
• A shrewd investor would not spend more on an asset that generates income than it would cost to construct or buy an asset of a similar nature.
• According to this theory, the cost of acquiring a comparable substitute property with the same use, design, and revenue determine the maximum value of a property in most cases.
• For instance, why would somebody pay $1,000,000 for a home when they could pay $750,000 for a different but as appealing home in the same neighborhood?

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