What is the key characteristic of substitutes in terms of consumer behavior?

The key characteristic of substitutes in consumer behavior is cross-price elasticity. This concept refers to the degree to which the quantity demanded for one good changes in response to a change in the price of another good. When two goods are substitutes, an increase in the price of one will typically lead to an increase in the quantity demanded for the other as consumers switch their preferences to the less expensive option.

Cross-price elasticity measures this relationship quantitatively; if a positive cross-price elasticity is observed, it indicates that the goods are substitutes. For example, if the price of coffee increases, consumers might buy more tea instead, demonstrating how the demand for one product can be influenced by the price change of a similar product.

The other options do not capture this core dynamic of how substitute goods interact in the marketplace. Preference consistency might pertain more to habitual purchasing behavior rather than the reaction to price changes. Consumer loyalty relates to brand attachment and may not necessarily imply substitution behavior. Brand recognition is about how well consumers identify a brand but does not address the fundamental economic principle of substitutes responding to price adjustments.