WoWconomics: Market Clearing Prices & Raw Materials

I know, I know. Two weeks in a row is a little much, I’m sorry.

Nonetheless,

In chapter 10 we discussed the ideas of market clearing prices, and specifically in the homework section of that chapter the question about parking spaces in Boston got me thinking about how markets determine prices for the limited number of resources. Supply and demand! Those 3 parking spaces were not all in the same location, and as a result different people had different valuations for each spot. What was easily observed, before even looking at numbers, was that one spot was going to be more highly coveted than the others, because it was incredibly close to two potential buyers. Now, where does world of warcraft come into play? Well, first read the first few paragraphs of this article to help you get the jist of where we are going. If you already understand the function of raw materials in the World of Warcraft economy, specifically Copper Ore, then feel free to continue reading.

Copper Ore is the easiest ore to mine in World of Warcraft, meaning, as soon as a player decides they would like to learn how to mine, it is minable. The same cannot be said for ores such as Thorium, which require extremely high levels of mining to extract. What this simple definition alludes to is the inevitable focus of supply and demand of the ores and the people who need them. One would initially assume that due to the inherent hurdles one must jump through to acquire Thorium that it would have a higher price than the lowly copper ore, however in general, that is false.

Why? Why does the market yield a higher price for the easily obtainable copper ore and a lower for the elusive Thorium? The same reason the parking spots in Boston yielded different prices, it was what the buyers needed. Hypothetically, those parking spots in Boston could have been different, with one being in a beautiful parking garage with lights and other “bells and whistles,” while the other could simply have had two white lines and a number on the side of an alley. But, the important thing to the buyers in this market was NOT the quality of the product, but simply its location, or its use.

While Thorium is harder to get and it is rarer, fewer people desire it, because it has fewer uses. On the other hand, copper ore has a plethora of uses across disciplines that now create a larger market for a finite amount of resources, supply and demand. As the demand for a product goes up, so does the Market Clearing price, which will result in a higher price for Copper Ore than Thorium Ore. This is the same situation that occurred in Boston, the product that had the most use for the most people received the highest price, which we all know, is the basis of Supply and Demand. Our two favorite concepts.

 

 

Advertisements

1 thought on “WoWconomics: Market Clearing Prices & Raw Materials”

  1. While I know next to nothing about World of Warcraft, I thought this was an interesting take on supply and demand. We intuitively think that scarcity must mean value, and if it’s rare, we want to pay more for it. However, a high price requires high demand, and high demand cannot occur if people do not have a use for something or a reason for buying it. An object can be the only one of its kind in the world, but if no one has a reason to buy it, then it is essentially worthless.

Comments are closed.