Affiliate Broker Tennessee (TN PSI) National Practice Exam `

What does the economic principle of substitution imply?

1. Higher priced properties will sell first

2. Properties with more amenities are preferred

3. Lower-priced homes will tend to sell first

4. All properties have similar value

The correct answer is: Lower-priced homes will tend to sell first

The economic principle of substitution asserts that if two properties are similar in nature and one is priced lower than the other, consumers will generally prefer the lower-priced property. This principle is grounded in the idea that buyers will seek the best value for their money, leading to the conclusion that a lower-priced home will often sell before a comparable higher-priced option. In the context of real estate, this means that when factors such as location, size, and condition are comparable, the price becomes a decisive factor for buyers. A lower-priced home will attract more interest and likely lead to quicker sales, demonstrating how market behavior aligns with the principle of substitution. Thus, the correct choice reflects this economic reality, illustrating how price plays a critical role in the decision-making process for homebuyers.