Economy Model Version 0.2

[amjayee]

F_Smith: I think that's what elasticity is used.

Guildmaster: Yes, that sounds as a plan. I think that would work quite well. The people should perhaps have a demand for every good, and a grade; that figure might be a floating point number, for example the grade they want for their cars might be 3.3; mostly grade 3 cars, some grade 4, and little everything else. This would decide the amount of money they would spend on cars. Grade system sounds great now! I think we should try can we make it work.

[The Joker]

F_Smith:

Yeah, that was what I had in mind for elasticity.


Guildmaster:

I think that the graded goods could very well work, and would also be a good addition to the economy model. But I think that we should start out by making a more simple model without graded goods, and then introduce them later on.

One thing: I am not sure whether I think that raw materials should be graded. How are we to decide the difference between a car made by grade A iron and one made by grade C iron? It might add too much complexity. I think having the finished goods being graded is propably enough.

[Guildmaster]

The only difference between one grade ore another would be purity, or content. Say you would kneed 10 tons of grade c gold ore to extract one ton of gold, while grade a gold ore is basically pure gold. It only comes to mind when I read an article in the paper about crude oil found in Venezuela that was more like paste, and was much more expensive to refine than say oil found in the middle east. But i see what you're saying, grading raw materials wouldn't really add too much, other than to say some deposits are more profitable than others.

[The Joker]

Guildmaster:

Well, I think that it would propably be much simpler and easier to have raw material deposits that gives different amounts of raw materials per turn, in stead of different grades of raw materials.

But I am starting to like the graded consumer goods. How about making it so that when people can afford to buy a certain amount of a good, then they will upgrade to a lower amount of a higher grade of that good?

So when 1000 people can afford to buy 20 car grade F, then they will upgrade to 15 car grade E (which would automatically cost the same). This would give us the opportunity to have graded goods, with all the trade and specialization that comes with it, but without needing complex price calculations for every single grade of every single good.

------------------
"It is only when we have lost everything
that we are free to do anything."
- Fight Club

[Guildmaster]

So wait, if 20 people who can afford grade F cars automatically buy 15 grade E cars instead, what are the other 5 people goin to drive?
Perhaps I didn't fully understand what you meant?

The way I meant it, say you have a demand... some 1000 cars needed in France. You look at the wealth demographics and find 2% extremely wealthy and 80% extremely poor with an %18 middle class. So, 20 Bently Arnage will be needed (2% of the population, 2%of the demand) also 180 Toyota Camrys and also 800 Yugos. To get Bently you have to buy from England so you buy 20 Bentlys from England, 180 Toyotas from Japan, and 800 Yugos from Yugoslavia.
This is a basic outline of the graded consumer goods vs. wealth demographics. Either way, 1000 cars are demanded and 1000 cars supplied. I'm assuming we're going into more detail than just rich/poor/middle class so there's also more than three grades.

[The Joker]

Well, I don't think a car unit would actually mean one car. It would more mean the amount of cars that 1000 people would drive.

My concept was, that when 10000 people get wealthy enough to buy 20 grade F cars (which would propably mean 2 cars per family) they would in stead upgrate to 15 grade E cars (which would automatically cost the same). This would mean that the wealthiest half of these people would have 2 E cars per family, and the less wealthy part has 1 E car per family.

I think your system might create some problems, as the luxury cars are much more expensive than the cheap cars. This will mean that the wealthy people will spend more money on cars the the poor ones, but it also means that in a market economy it would create an independant supply and demand for each grade of the car. And thereby we might end up having 100s of different goods.

I think that although graded goods would be a great addition to the economic model, we should start out by making a more simple model, and then gradually build it up to be more advanced.

[Guildmaster]

Firstly, we already have a good basic model and this is adding a little complexity to it, just like you suggest.

Second, to have more that one demand for any given supply is exactly the thing I was looking for.

(still using the car example) If people automatically bought a higher grade car thet would mean lower grade manufacturers would be automatically be out of business, even though the demand is the same. If there are 2 cars per household needed why would they settle for only one simply because it's more luxurious even though they needed two?
Or perhaps one car in every three households, why would people then go to one in every 4 or five just because they can afford a better model?
I think that if youe example were accurate, auto industries in America would be dead compared industries in England and Italy who for the most part stick to grade A Rolls, Bently, Ferrari, etc. because instead of meeting the demand for volume say ten execs who all need their own car would get together and buy 1 Bently Arnage. It just isn't logical.
Now on the other hand, if the opposite were true, only American and Japanese cars would be sold because of the sheer volume needed to meet the demand at a low cost (ie. a lower grade) But that would mean no one is buying British or Italian cars.
As for the complexities involved with a multi-grade demand structure, they really are quite simple. While the demand for said good (in this case cars) is a factor of this and that and everything else, demand for each grade of that good is solely a factor of wealth demographics which makes it quite simple to calculate.

The main strength of this system is that it allows smaller countries without the mass resources of world leading empires to enjoy a portion of an industry simply by producing small ammounts of an extremely high grade good.

[The Joker]

Well, I really don't think my model is ready for implementation. I am thinking about ways to improve it, even at the most basic level, but it is pretty dificult.

I would rather wait a little while untill adding further complexity to the model.

The demand model for graded goods:
I think it could make sence. First there is no such thing as needing 2 cars. I think that it will make sence to use a system as the one I proposed. First it is really simple to do, and it still offers the advantages of the graded goods. All it needs is a simple function for the costs of the different grades of the goods. Imagine that whenever 10,000 people can afford 3 cars of one grade, they automatically upgrade to 2 cars of the next grade, and so forth. This will make sure that no family buys 19 grade F cars.

I don't think that you understood my system. Of cause people would not upgrade to higher grades if there is less than 1 car per family. It is easy to make sure that such a thing will not happen.

Examble: In a society there are 3 classes. The poor, who demand 20 car units per 10,000 people, the middleclass, who demand 40 car units per 10,000 people, and the wealthy, who demand 120 cars per 10,000 people. This means that the poor have in average 2 grade D cars per family (10 cars per 10,000 people would mean 1 per family). As they have less than 3 cars per family they will not upgrade. The middleclass can afford 4 grade E cars per family. This means that they will upgrade to 4*2/3=2,7 grade C cars per family. The wealthy have 12 grade D cars per family, which means that they will upgrade to 3,6 grade A cars per family.

This system makes sure that the demand for each grade of a good is put into the intitial demand for the good. It offers a lot of flexibility, as both the amount of cars bought and the grades of the cars are included into the same function, and at the same time it is simple enough to make it workable with a minimum of extra calculations. Simply have a function, in which a grade B costs 2/3 of a grade A, a grade C 2/3 of a grade B and so forth, and everything can be calculated.

I also have to say, that I don't think we will need grades for all goods. In luxury items such as cars or wine it is really good, as it offers a civ the ability to make a niche production, as you said. But I see no need to grade food.

[Guildmaster]

I actually would see a use (not so important though) for graded food items, especially with the advent of artificial additives and colorings, pesticides, preservatives, hormone-injected livestock, "Organic" produce, etc.
Perhaps that's taking it a bit too far though, although I see perhaps the green movement going on in Cuba right now where all agriculture is done by organic means (and producing more per acre too!) as opposed to industrial chemical fertilizers. To top it all off the food tastes better... or so I've heard as it's difficult to get goods from Cuba here in the states.
Either way, different agricultural technologies can affect the food crop output and health of a contry so perhaps foodstuffs don't need to be graded. Or if they do, Grade A sandwich might be a prosciutto & gorgonzola on rye while Grade F sandwich would be bologna & PP cheese on generic bread...

But for luxury items and MFG goods

Please explain better, but I don't see how your system wouldn't change the ammt of a good being bought? If a demand is for 20 car units and only 15 are supplied where are the other 5? Or are you saying that each grade represents a point scale where 20 car units isn't an exact figure? Best I gather from your example is that 1 grade A car would represent 12 grade F cars? If this is the case then what's stopping everyone from buying all grade A of a good, since you can meet the entire demand with a higher quality good just by buying fewer? Then who would buy, who would make, and what's the point of having lower grade goods?
Also, if there is a demand for 2 or even 3 or 4 cars in one family why would the family opt to buy only one high quality car, the high demand would indicate either a different kind of vehicle (car for driving, truck for working) in which case 2 still are needed and 1 higher grade car wouldn'd suffice... or more likely there is 2, 3, or 4 drivers in the one family, and while the husband needs the car to go to work, the wife also needs the car to go to work, and the kids one has college to go to and the other is still in high school but they all need to drive because there is a lack of public transit. Why would such a family opt for only 2 or even 3 cars when 4 people need their own? In addition, I was under the assumption that the ammt of a good in each unit would remain constant? If 15 D goods were the same as 20 F goods wouldn't that change the ammt of a good?

I dunno maybe I'm just confoosed

[Guildmaster]

OoK here goes...

The total demand for a good is outlined by your trade minister. Say a province/city in your country has a demand for 100 cars (or units of cars). This represents all the people in the province/city who want to buy new cars just for the sake of it, old cars that break down, new drivers that come of age, perhaps a new model meets a need that hadn't been met before. Or for whatever reason, a total of 100 cars are needed as a "trade demand"

The wealth demographics for this province/city are as follows,
1% are "Very Rich"
5% are "Rich"
29% are "Middle class"
45% are "Lower Middle Class"
20% are "Poor"

So, of ALL the goods sold to these people:
1% grade A
5% grade B
29% grade C
45% grade D
20% grade F

This means of the 100 cars demanded,
1 grade A car
5 grade B cars
29 grade C cars
45 grade D cars
20 grade F cars

SO then you look at the supply, if the supply meets these at market value nothing happens. The cars bet bought the people ar cool, everyone is happy. Now suppose the available supply were as follows:
A cars: 0
B cars: 0
C cars: 15
D cars: 10
F cars: 129
In this case, the price index for C and D cars would go up and all those would be bought, and also 75 F cars would need to be bought to meet the total demand. BUT since the people demanding them got the lower quality goods they will not be happy and this will add to their discontent. If 75 F cars weren't available to meet the total demand then a lot of people in you empire would go "car hungry" since a trade demand is not met. Either way, demands are not met. (A smart player would take advantage of this and subsidize the development of a luxury car)
Now suppose the supply were as follows:
A cars: 15
B cars: 12
C cars: 4
D cars: 1
F cars: 2
Since the supply of A and B cars is so much higher than the demand they will sell for a much lower price to consumers demanding lower grade goods, meaning a large portion of the people will be quite happy they get better than they asked for. BUT still, the total demand is not met so a lot more people will be less happy about it.

[amjayee]

Guilmaster's text seemed reasonable, somewhat like that it would work. In the final example there was a flaw though; it was over-simplified. If there are only high grade cars available, prices might go down, but still the poor couldn't afford them; that would create demand for lower-grade cars, which would encourage import of lower-quality cars. If those are not available, in a long run they are started to be produced, to meet the demand.

Also, if your poor people don't have enough money, they will not buy those cars; but I think that is taken into account when calculating the demand.

I also thought that this system could be used succesfully also with military equipment; there could be grade A combat fighters or tanks, for example. Perhaps also the buildings and facilities could be graded? You could build higher-grade temples, to make your people more happy, and your neighbors envious.

[The Joker]

I still see some flaws in your system, Guildmaster.

How do you know when people are rich or poor? What if the wealth drops, and the rich gets poorer, when will they buy grade B cars in stead of the grade A ones? And what if the price on cars change? Another thing is, that you can not seperate the income of the people and the demand for a good. Maybe the poor people simply can't afford any cars! I think that the system is inflexible to changes in society.

But the main objection I have to the system must be, that it calculates the price on each grade individually. And with 5 grades and 50 goods this will simply create WAY too many calculations for the player, as trade, supply and demand will have to be calculated for every single grade of all goods.

With my system the "wealth" of the people is automatically calculated via their initial demand for cars. If the price on cars change (or if you change the tax on cars), the "wealth" of the people will change accordingly. And it does not mean that people will just pool together to buy fewer cars of a higher grade. It will only mean that when the amount of cars per family (or per person) reaches a certain level, people would rather have fewer cars of a higher grade than buy more cheap cars (wealthy people would rather have 2 Ferraris than 100 Fiat 500's).

I don't think that the demand for cars can be seen as a demand for a certain number of cars. It would rather be a wish to spend a certain amount of money on cars (this amount would be changeable if the price on cars change or if the income of people change), and then the size of this amount will determine how many cars of each grade will be bought.

Graded food:
I really don't think we need this complexity. Of cause in modern times we would eat food of a higher quality than in ancient times, but it might as well be portrayed by having us eat much more food than they did, as we eat a lot of meat, which is less costefficient than grain.


Amjayee:
I generally don't like grading military equipment. Like the training levels it would create a lot of uncertainty, as noone really know what grade is most costefficient.

I don't really like grading improvements either. I think that you should propably just buy an improvement, and then you would have to spend some money every turn to actually use the improvement.


Anyway, I have finally figured out a better way to handle the supply/demand calculations. It is not much different from the earlier method, but it is generally better. I don't have time to post it now, but I will propably do so later today!

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"It is only when we have lost everything
that we are free to do anything."
- Fight Club

[Guildmaster]

I thought that wealth we already know, and we were already using wealth to calculate initial demand/supply.

I also don't see why the player is going to have to calculate all this? It seems to me the computer ought to be able to do that.
Say yo have a pop-up menu for buying goods...
You say you have a demand for 3 A cars, so you go to your trade advisor who says to buy 3 grade A cars from England will cost 3600 ea. but 3 A cars from Italy will cost 3300 ea. which one will you buy?
Then you also need 12 B cars... Germany has 8 B cars available for 200 ea. while japan has plenty for 333 ea. and Canada is making 14 for 311 ea. So you buy 8 german cars and then 4 canadian cars
and so on and so forth.

[The Joker]

The initial demand will be a certain amount of the good at a certain price. This means that the amount of money people spend on a good is included in the demand. But as the more expensive cars will cost much more than the cheap ones the wealthy people will spend much more money on cars than the poor ones. But this amount is in your system not included in the initial demand. In stead it becomes a function of the wealth of the people, without looking at what people spend on other goods. And therefor we would not really know how much people spend on each good.

My system pretty much does the same thing as your system. It just offers a way to calculate the demand for each grade in a way that is integrated into the demand function. Your system doesn't do this. Therefor I think that my system is not only further developed compared to yours, it is also more flexible.

Calculations:
Of cause the computer will do that. All of that. Including buying and selling goods. You shouldn't have to buy goods from other civs. Your people will do all this automatically. You will, as the government, set the tax level, set tariffs, make embargoes, build units and all other sort of fun things. This will mean that the amount of micromanagement will be decreased heavily.

What I meant about calculations was, that the computer might not be able to handle them. If we have 500 provinces and 50 goods all with 5 grades, this means that the computer will have to calculate 5*50*500=125,000 different prices. Calculating every single price might easily require 10 calculations, and this means that there will be over 1,000,000 calculations to be made. On top of this the calculations for the trade between provinces will escalate this amount even further, as you will have to check the price plus the shipping costs for every province in all provinces. This could mean that in the end there could be over 100,000,000 calculations having to be made every single turn. And this is simply more than an average home computer can do within a reasonable timeframe.


Anyway, to move away from the graded goods I would like to present the new and improved demand and price model:

Demand is handled pretty much like before. When looking at a single good the initial demand is like before when the price is 10 per item. the elasticity describes how much the demand will decrease when the price rises with 1. The elasticity is a percentage of the total demand. For basic goods, like food, the elasticity is really low (less than 5%), and for luxury goods, like wine, it is high (above 10%).

The supply function is what has been changed the most. Before it was a horizontal line. Now it has a positive inclination, meaning that when the price rises the supply rises too. At the beginning of the game the inclination of the supply line for food will be at a level where supply equals demand when the price is 10. Of cause when people get wealthier and there is more of them the demand function will be moved upwards. This will mean that the price of the good will rise.

The supply graph will have to change to make sure that the price wont continue to rise. The beginning of the supply graph will not change - when the price is 0 the supply will be 0. It will always be so. What will change is the inclination of the supply graph.

This will happend via a simply algorithm. Each good has an "optimal" income per sold item. Income is of cause sales - expenses. This optimal income per item is a certain number. For food it might be 3 credits. If the price on food is 10, and the total expenses in the food production didived by the amount of food produced is 6, then the income per item is 4.

When the income per item is different from the optimal income per item the supply graph will change (it will propably not change untill the next turn). When the income per item is higher than the optimal income the inclination of the supply graph will rise with a certain, small percentage (perhabs 1 or 2%). When the income per item is higher than the optimal income the inclination of the supply graph will drop with the same percentage.

This will make sure that the supply graph will follow the demand graph in the long run, but that there is still room for changes in the supply graph without changes in the demand graph.

Imagine that the demand suddently rise with a considerable amount. This will mean that the price on goods will rise, as a higher production requires a higher price (due to the positive inclination of the supply graph). But as the producers have a great time with high prices the amount of producers eventually rise (the inclination of the supply graph rises), which forces the price downwards. The price will continue to drop (over a considerable amount of time) untill the equilibrium is reestablished.

Another examble will be where a war in a major oil exporter occur. This means that the amount of oil produced drops (the inclination of the supply graph for oil drops). This means that the producers of consumer goods will have to pay more for the oil. This means that their income per item drops, which causes the inclination of the supply graphs to drop. This again means that the price on goods rise, without the income of the people does. This means that the real income of people (the amount of goods they can buy) drops. A recession has been made without any form of artificial algorithms!

The total demand the people has is calculated via their income like before. The income is used to calculate how much they demand of all goods (when the price of the goods is 10 per item). The actual price setting is done by first taking the most basic demand - food. The total demand is calculated, the price is determined, and it is calculated how many credits people use on food, and how many they have left. If they still have money left the next thing in the demand function is taken, a price is determined and again the people's spend on the good is calculated, and the amount they have left is calculated. Then the next good is taken, then the next etc. If the people run out of money they will simply consume what they have bought so far. If they end up spending more money than they have then the amount they spend on the last good they bought will be changed to make sure that they spend the same amount as they earn. The other goods they buy will not have to be changed by this.

I think I am done now. I now actually think that no futher work is needed on the demand, supply and price. If anything I have written is not clear please tell me. I am pretty sure that this part of the economy model is ready to go. Of cause the actual production of the goods, where the income comes from etc is still not quite settled. But we'll get there!

At least now we are one step closer to perfection.

I have some ideas on how to do the production of the goods. But I will not post them right now due to lack of time (I also have to post in the population thread).

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"It is only when we have lost everything
that we are free to do anything."
- Fight Club

[Guildmaster]

Odd but I don't think you understand my system?

The ammt of money people are willing to spend on any good depends on a)the price of the good and b)how much money people have. Beyond that it's not too complicated. So if the income level is lower than the price of the lowest grade of good obviously the demand will be low. The demand increases when the income level rises so that people can afford it... so that the demand of each good is already calculated in the base price.

As for calculations, even 1o million calculations take very little time when the calculations are as simple as
x(a)=10c
x(b)=3c
x(c)=c
x(d)=.7c
x(f)=.4c

but the big thing that still concerns me is this: IF there is a demand for X ammt of a good assuming the people can afford that ammount, why would they buy less of a good just because it's abetter good? If I'm making a cabinet and I need 15 nails, I'm not going to use 10 nails just becasue the're better nails. if 15 people need 15 cars why would they buy 10 cars just because they are better cars what are the other 5 people going to drive? You still haven't explained this?