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Constant Quality Unit
All the supply and demand analyses which follow, whether concerned with energy, the labor market, illegal activities, or what have you, must always be expressed in terms of constant-quality units. We know that all shoes are not alike and that all automobiles are not alike. Nonetheless, we talk about the market for shoes and the market for automobiles. We also talk about the law of demand as it applies to each of these markets. When we talk about the quantity demanded of these or any other commodities, we must be aware of the fact that we are talking about constant-quality units. Hence, the correct way to describe, say, the quantity of shoes demanded is to talk in terms of the relative price of shoes and of the quantity of shoes measured in constant-quality units. Now that's really a mouthful! Therefore, throughout the rest of this book, the word "price" will be understood to mean the relative price of a commodity measured in constant-quality units.
There is a direct relationship between quality and price per constant-quality unit. Often new restaurants start out with relatively high-quality food at a certain set of prices. If the restaurant is very successful, it is not uncommon to see (and experience) a decline in the quality of the food served at the same prices, or alternatively, it is not unusual to see the sizes of the servings get smaller. Thus, the price per constant-quality unit after the restaurant has become more successful rises because of this decline in the quality and/or portion size.
In this text, we don't have to worry about how we would actually measure the quantity demanded or supplied of a particular commodity in constant-quality units. That would be the job of the econometrician, that is, an economist trained in the application of mathematics and statistics to the verification of economic theories. Econometricians must worry about adjustments for quality variations in their statistical studies.
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