Project Lore

Goblinism 101 connects real-life economic principles with the markets that exist in World of Warcraft. It seeks to teach about capitalism's WoW analogue, goblinism, through examples and stories.

The terms "supply and demand" are terms incorrectly thrown around by a lot of players. I think the average player understands that more supply means lower prices and more demand means higher prices, but many players do not understand changes in supply and demand very well. It's a problem that many beginning economics students have as well, so lets take some time to investigate it.

The first step to understanding a phenomenon is to collect data about it. When evaluating supply and demand of a particular product, economists ask the people selling the product "how many of this product would you be willing to sell at a variety of prices?", and of the consumers they ask "how many of this product would you be willing to buy at a variety of prices?" Using this data, they create charts called "supply and demand schedules". Lets look at a made-up example where we try to evaluate the Primordial Saronite market.

Primordial Saronite is relatively hard to get. It requires 23 Frost Emblems or a lucky drop (and theoretically high roll) in a 25 man ICC raid. As such, it's very expensive. If we asked 100 players who could get Primordial Saronite "how much Saronite would you sell in the next week if you could sell them at 3,000 gold?", we might get an answer like 200 Saronite. If we asked the same question at a lower price point, say 2,000 gold, we might get an answer of around 150 Saronite. Here is a completely made up chart showing a theoretical supply schedule:

It is very clear that price and number are directly related. The more you can sell it for, the more people are going to do their daily heroic and farm for this particular good, increasing the number sold.

On the flip side, if we poll 100 players and ask how many Saronite they would buy at 3,000 gold, only really hardcore raiders would take it up and maybe 100 would be sold. At 2,000 gold, it might be slightly more affordable and 150 might be sold. Here is a theoretical demand schedule:

The take-away lesson here is that for demand, price and number are inversely related. The cheaper the product, the more will be sold.

So how much will Saronite sell for on average? Well, if it were 1,000 gold, our schedules tell us that we would have 100 wanting to be sold and people would want to buy 200. As an economy, we would run out of goods immediately. If it were 3,000 gold, there would be 200 wanting to be sold and only 100 would be bought. The other 100 Saronite would not sell fast enough and the sellers willing to sell lower would begin to cut prices until every Saronite could be sold. Noone wants to hold onto items for too long, as they lose value over time (more on this in a future post). As such, the market price will reach equilibrium at the point where supply and demand are equal, at 2,000 gold and 150 sold. Any cheaper and there isn't enough Saronite to go around, and any more expensive and Saronite would remain unsold.

Keep in mind that this describes long-term and average behavior. You may still be able to find an uninformed soul who will pay 5,000 gold for a Primordial Saronite, and you may be able to find a bargain.

Next time, we will look at the differences between a shift in the schedules versus a reactionary change in equilibrium price.