Which basic principle involves replacing one good with another to satisfy wants?

• A. Highest & Best Use
• B. Externalities
• C. Substitution
• D. Contribution

Answer: (C)

Substitution is the idea that, when wants must be satisfied with limited resources, people replace one good with another that provides a similar benefit. As relative prices or availability change, consumers switch to substitutes to maximize satisfaction within their budget. For example, if coffee becomes expensive, many switch to tea or another beverage that serves a similar purpose. This behavior—replacing a good with a comparable one to meet needs—is the essence of substitution.

The other concepts describe different ideas: Highest & Best Use is about choosing the most profitable way to use a property, externalities are unintended side effects on others not captured by prices, and contribution refers to the value added by a unit or factor to total output.