Incorporating Quality-Differentiated Demand into the Undergraduate Microeconomics Core.

This article focuses on incorporating quality-differentiated demand structures into undergraduate microeconomics to better analyze consumer choice and market efficiency. It develops a conceptual framework assuming a constant marginal rate of substitution between higher and lower quality versions of a good, resulting in strictly proportional demand schedules for quality levels. The paper introduces the concept of latent separability to allow consumers to optimally choose multiple quality levels for different uses, addressing the limitation of models where consumers select only one quality. It further compares competitive and monopoly market outcomes, showing that competitive markets yield an optimal mix of quality levels, while monopolies tend to favor higher quality, potentially leading to suboptimal quality mixes and welfare losses for lower-quality consumers.