Which economic principle states that the value of a good or service is affected by the cost of acquiring a similar item elsewhere?

The correct answer is based on the principle of substitution, which explains that the value of a good or service is influenced by the availability and cost of similar or comparable items. This principle suggests that if a buyer can substitute a similar product or service at a lower price, they are less likely to pay a higher price for a different but similar item. This dynamic illustrates how consumer behavior and market conditions affect property values; for instance, if two homes are similar in size and features but one is considerably less expensive, buyers will likely gravitate toward the more affordable option, thereby exerting downward pressure on the value of the more expensive home.

Understanding this principle is essential in real estate valuation, as it highlights the importance of comparative analysis when assessing property values. This consideration helps agents and appraisers determine fair market prices for properties based on the alternatives available to potential buyers in the market.