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Economy Model Version 0.2
I am posting this in it's own thread just to make sure that everybody sees it.
It is a pretty rough start, but it starts from the basics and works it's way up. Unfortunately it is so complex that it is almost impossible to sit down and calculate what will happend the next turn via some know parameters. Therefor we will propably need some economy program (only text based) to balance it off, after the model has been somewhat settled, but before it is included in the game.
Ok, here goes:
ECONOMY MODEL VERSION 0.3
INTRODUCTION
Economy is one of the major factors in the game. Economy is the foundation that man y of the game's aspects. Trade, production, politics and much more. Therefor a good economy model is crucial for a good civgame. Civ2's economy system was ridiculously bad. Not only had it very little to do with reality, it also required far too much micromanagement, and it neglegted a lot of interesting options that could be possible with a good economy model.
Making a good economy model is, however, a very complex matter. Guildmaster showed us what economy should do. Now I will try to show how we could make it do that.
My economy model is based on real economic theory. It has only been slightly changed to meet the needs of a computergame. It is based on a microperspective, as it focuses on the individual consumer and producer. As far as I know this is the best way to calculate prices. Of cause I am no expert in economics. It should, however, generate some macroeconomic effects, which is good. The model is really complex and requires a LOT of calculations by the computer every turn (unless we find a more simple intercity trade system this number might escalate into millions of needed calculations). If this is a problem then we will have to figure out something simpler. If not then let's go!
DEMAND AND PRICE
The people of your civ are consumers. They demand goods. What they demand is determined by their income level. The more wealthy they get the more goods they demand. The basic price for 1 item of a good is 10 credits. This is the same for all goods. This price will, however, change due to the supply/demand situation. My basic population unit is 10,000 people. 10,000 people will eat 10 food per turn. Food is the basic good. People will buy food before they buy anything else. This will mean that the first 100 credits people get will be used to buy food, at the basic price of 10 credits per food item. When people's income rises above 100 they will demand other things. Maybe they will use the next 50 credits they earn for small consumer goods, to a total of 5 items of that. The next 30 could be used for clothes, the next 20 for more small consumer goods and so forth. This will mean that at a basic price of 10 credits per item a PU with an income of 190 credits demand 10 food, 6 small consumer goods and 3 clothes. How people get payed is described later. In the late game people will have incomes that are way larger than these. Today people will have incomes that propably exceeds 5000 credits. This will mean that they will demand loads of goods of all different sorts. When people get very high incomes they will also demand services, which will be delt with a little different than goods.
The demand changes when the price changes. The amount the demand drops when the price rises with 1 is called the elasticity of that good. If the elasticity is 100 then the demand will drop by 100 when the price rises with 1. This means that if the price is 15 then the demand will be 500 lower than the basic one. If the elasticity of a good is 20 and the price is 8 then the demand will be 40 higher higher than the basic one. The elasticity is individual for each good and will not change. I am not sure if this is a good system, though, as the demand is very different in a large city compared to a small one (a demand change of 100 with a total demand of 100000 is a lot different than if the total demand is 400), so perhabs using percentages is better, so an elasticity of 10 means that demand will drop 10% when the price rises 1. This system will mean that the demand graph will not be a straight line, but would get closer and closer to 0 as the price rises, but would never reach it. Or we could use a system where it drops 10% of the basic demand when the price rises with 1. This has the disadvantage that with elasticity 20 the price can never exceed 15. I am not sure what system we should use.
Supply of a good is the amount of it available in the city. It is determined before the turn and before the demand is determined and will not change untill the next turn. This will mean that no matter what the price is the supply is the same. I know that in economic theory supply usually rises when demand rises. But in the game I think that this should not be in the short run that a turn is. In the longer run supply will rise when the price is high. But this includes more factors, which I will explain later.
The city is the basic unit in the model. Demand, supply and price is calculated for each good in each city. I will therefor look at the individual city when explaining this: Via the income/demand algorithm, which is the same for all classes (there is different classes with different incomes and therefor different demands) the total basic demand for a good is calculated. The basic demand is when the price is 10 per item. The way the price is calculated is best shown via a simple supply/demand graph. The price is the x-axis, the amount is the y-axis. On this graph the supply is a horizontal line, meaning that it is a certain amount no matter the price. The demand is a line with the total basic demand as the amount at the price 10. The elasticity of the good is the inclination of the line. It is always negative. This all means that the supply and demand graphs will meet at a certain place. The price at this point is the end price. The new demand is the consumption. It is shared among the consumers, so each consumer gets the same percentage as it got from the basic demand. This is then done for each good.
If the elasticity of all goods were 10 (using the third elasticity system, although I am still not sure what we should choose) then people will use the same amount of credits on all goods no matter what the price, as a price rise would result in an equally sized demand drop. Of cause this is not always so. If the price on food goes up then people will not just demand less of it. In stead they would reduce their expenses on other goods and use more money to buy food. On the other hand if the price on champagne (not that it should be a good in the game, it's just an examble) suddently doubled then people might not want to spend as many money on champagne as they did before. In stead they might spend even less money on it, and in stead buy other things. All this has the effect that the end expence people have on different goods might not be the same as the basic one. This has the effect that people, when the demand for all goods have been calculated, might end up spending more or less money than they have. If this is the case then the demand will of cause have to change. If people spend more money than they have then they will reduce their demand on the "last" good that they buy (the one that they use their last money on after having bought food and the other basic goods). This will be done for all income classes and a new demand is calculated for some goods. This is put into the supply/demand algorithm, and a new price is calculated, so income and consumption will match. If people have spent less money than they have then they will spend more money on the basic goods (starting with food and moving upwards) if a high price has made them demand less of these goods than their basic demand is. Otherwise they will buy some more of the goods that they would have bought if they had a higher income. Again demand and price is calculated to make sure that it matches.
When a good has a low elasticity it means that it is an essential good that people really want. They will therefor go really far to get it, meaning that consumers will overbid each other, in an attempt to get more of the god. Of cause the supply wont change no matter how high the price gets, so people only makes it worse for themselves when they push the price upwards. The next turn, however, a high price will make the supply rise.
When there is a lack of food (less food than people eat) the price on food will be pushed upwards. The price system here needs to make sure that the upper class will push the price up to a point where the lower classes can no longer afford it, making sure that the upper class gets enough food and the lower classes get less food than if it was shared equally among the people. The same thing could happend with other basic goods. This will mean that it might be best for you in some situations to rationalize a good (divide it equally among your people) as it, in the food examble is better to have everybody eat 80% of the food they need (at which point they will still live) in stead of a small upper class get all the food they need when the rest of the people die and riot as they only get 50% of the food they need. Of cause there will also be disadvantages with rationalizing goods, which will be explained later.
SUPPLY AND INCOME
Before I described the supply as being a horizontal line. This is realistic when looking at one moment in time, as there is only a certain amount of goods available. In economic theory, however, supply rises when the price rises, as when the price on a good is high then a lot of people will want to produce it. I think that in our game it would be better to not do this, as it creates a much more vibrant and living economy when the supply changes over time. And it will change over time. Between each turn supply will change according to the price. If the price is high the production (supply) will rise, when it is low it will drop. Therefor in the long run supply will follow price. The lag in supply is what will make the economy dynamic. Without it it would be static. Excactly why supply follows price will be described later.
Production is started and run by the private sector (or sometimes by the government).
First I will look at production. As Cylon correctly mentioned you need some things to produce. These are:
Startup capital: The amount needed varies from good to good. To start producing cars or space shuttles you need a very high startup cost, where other sectors require only little. Some sectors would not require any startup costs. The startup costs is what makes trade between cities profitable. In stead of wasting lots of money to start production of all goods in all cities the cities can specialize in a few goods and then trade with each other, which makes sure that they can produce more and thus get wealthier. The startup capital will not depend on the amount produced, and would be required one time when starting production of a good in a city, unless the city stops producing the good. In that case startup costs are needed again for production of that good to start again in that city. Maybe the startuo costs should actually go to buying actual machines.
Raw materials and half fabrikata: These will also have a price, but here the producers would be consumers (normal people don't demand iron ore or raw oil). The supplyers would be either be farmers (in the case of cotton and such) or other producers, who work in the raw materials sector. Price will be determinated for this as it is for goods. The amount needed of this is determined only by the size of the production. The beauty of this is, that we can have an economic crisis developing realistically: a war in a major oil exporting country emerges, and blocks this country's oil export. The world supply of oil drops, the price rises and everybody will have to pay more to get oil. As oil is needed for a lot of different goods the production costs of these rises. This means higher prices and/or higher prices on goods, without the wages goes up. This means fewer goods for all.
Money: To produce 1 item of a good you also need some money. This covers all the small expenses that can not be put into any of the other categories.
Land: Although it is usually included in economic models I think we should rather include it in the startup capital.
Labour: This comes from the workers. Labour is treated as a good like any other. The supply is the total amount of people in the working ages in the city. There is, however, differences between the labour market and the other markets. First the supply wont change very easy. The only way this can happend is with more or less people. As it will take ~20 years for kids to be old enough to work, this takes long. Migration is also needed. We must develop a migration model, with living standards (amount of goods the workers can afford and the access to other things like libraries), distances and cultural differences as primary factors. The demand for labour will not be decided by the wages themselves, but rather on the profitrate of the production and therefor indirectly on the prices on the goods. The basic wage for 10,000 people is 100 credits in the beginning of the game. This will allow them only to buy the food they eat. If the wages for several turns in a row doesn't give people enough money to buy the food they eat they will begin moving to the rural areas, where they will become independant farmers.
Labour is propably the most interesting of the productive factors. Each 10,000 people unit would, as previously mentioned, get 100 credits per turn in the beginning. They would create 100 labour per turn. The wage would be changed by unemployment or lack or workers. This will either make the wage go up or down. The productivity (labour per people unit) would be decided by technology level (new advances would rise it), and would propably rise a little every turn (like 2%). This percentage would depend on how fast technological development is being made. There should be some way to replace labour with capital (by buying machines), and I am not yet sure how city improvements like factories (which should most oftenly be built automatically by the private sector) should be handled, but it should be possible to fit it into this system. The wages would propably rise as productivity rose. But it shouldn't be automatic. It should be possible to have wages that were low although productivity was high. We will need to find some way to calculate wages, including supply/demand, productivity and more. Labour unions (which you could allow or ban) would put the workers stronger, and would make sure that they would not decrease in wage. Unemployment welfare (a public expence - you would set the welfare at a certain level per 10,000 people group. This would mean that people would never work for less than 10% more than this level, which in itself could create unemployment). Perhabs we could include a few ecucation levels, and independant supply and demand for each of these. This could, however, turn out to be too complex.
A good would require certain amounts of each of the productive factors. Cars might have startup costs of 10,000,000 credits (this number might be way off), and 1 car item could require 1 iron, 1 oil and possibly more raw materials and halffabrikata, and 20 labour. This would be different for each good. Each city has different avalibility of each productive factor (some cities have loads of cheap labour, others a lot of free capital) and this determines what goods will be produced in what cities.
The private sector is divided into two types (apart from the nobility and the independant farmers who only produce food, cotton, silk and such. Food production would propably be handled in a slightly different way than the others, but would use the same rules. For now I am focusing on the production of manufactured goods), the bourgeoisie and the little bourgeoisie. The first are large producers with employees, the latter is small producers who work in their own company and have no employees. They would not have much capital. To portray this I have chosen to only let them work in sectors where no startup costs is needed. They would not recieve wage, but would get the surpluss they make. This will make them vulnerable in a crisis. The relationship between the bourbeoisie and the little bourgeoisie would be shown by the economic concentration level (EC). This would show the percentage of workers being employees working for the bourgeoisie. If it is 0 then all would be independant little bourgeoisie's. The EC would be determined by the economic factors, but generally It would rise unless you did something about it (it would be beautiful if the economy model could do this by itself). There would be an EC for both farmers and producers. The bourgeoisie would be a very little group, who didn't worked. Their number would be decided by the EC, but they would not be a part of the workers.
Trade is a special sector. Traders do not make any goods themselves. In stead they trade goods. For trade (everything but complete autarky) to excist traders are needed. 10,000 traders can trade x number of items per turn. The number would of cause need to be balanced, and would rise with technological advancement. As income traders recieve a certain percentage of the price the consumers pay for the good. The rest of the purchase price goes to the producer. Trade would not need any startup costs, so the little bourgeoisie could also work in the trade sector. Employed workers in the trade sector would get the same wage as all other workers.
SURPLUS AND INVESTMENT
Each class has a savings level (SL). It shows the percentage of the income after tax, that is used for investment. For the bourgeoisie and the little bourgeoisie this is very high, and for the workers it would be pretty low (0 untill they became really wealthy). The investment is used to start new production, to buy the neccesary raw materials and hire the necessary workers to make goods that can be sold the next turn or, if the potential sale is large enough, start production of a new good in the city. Again the little bourgeoisie would only operate in sectors with no startup costs. Every turn it is checked what the profit (sale minus expenses) for all goods in the city is. The most investment will be made in sectors where the profit is high. A simple calculation method is used to calculate the investment in each sector. If a sector looses money then the next turn there will be less investment made there. If in the previous turn 1000 credits were invested in a sector, but it only brings back sales of 800, then the next turn the investment in that sector will only be 800 credits. In a sector where sales equals expenses or where there is actual profit then there will be invested the same amount of money here as the last turn. The sectors with profit will also face an increase in investment. It will work so that the investment capital beyond the amount that was available the previous turn is pooled together, and shared between the sectors with profit. It will work so that the profit for each good is calculated and compared with the profits for other goods. Examble: In a simple world there is 1000 availible credits still to be invested, and 3 sectors with profit. The first gives a profit on 3 credits per 10 invested, the second 2 and the last 1. This means that the first recieves 3/(3+2+1)=3/6=50% of the availible investment, the second recieves 2/6=33% and the last one 1/6=17%. Note that in a sector with demand but no supply there will be no price and no comsumption. In that case the potential price (the price at which demand is 0) is used to determine a potential profit, and so investment is likely to be made in that sector.
Most investment would create profit. Every turn the total investment of each class would be calculated, the profit of this amount is calculated and sent back to the investing class as income shared equally between the class members. The total income is calculated, with the savings ratio a new investment amount is calculated and so forth.
INTERCITY TRADE
The city is the basic unit in the economy model. Perhabs we will later have to make it the province, to reduce the amount of calculations needed, but for now it will be the city. Each city would have it's own price on the different goods. Consumers would buy goods from the cheapest availible source, whether this is in the city or not. To move goods between cities some money would be needed to take care of the transportation. This amount depends on the movement points needed to travel between the two cities. This makes sure that roads and railroads reduces this cost, and that traveling 3 hexes across grassland isn't like traveling 3 hexes in thick jungle. Technological advances would reduce this cost. In the beginning of the game the movements costs would be high. This would make out-of-city trade expensive, and limit intercity trade to cities right next to each other. In the endgame movement costs would be reduced to virtually nothing, creating a world market price on most goods. Intercity trade might turn out to be highly complex, and involve millions of calculations every turn. I have therefor not yet figured out excactly how this would work. But of cause local suppliers would have to compete with out-of-city ones. If they can not they will loose market shares, production would decrease and unemployment would be the result. This would especcially be catastrophic for you if the supplier was foreign. This would mean that production would decrease in your civ and that your people's living standards would drop. But of cause, in the long run and in the big picture division of labour is good and raises the overall living standards.
When shipping costs makes intercity traded goods as expensive as those produced inside the city then these cities becomes one market for that/these goods. Of cause local goods would still have the advantage of not needing to pay shipping costs. But supply and demand would be calculated for these cities as a whole. Of cause this will prove to be very complex when several markets overlap each other. I am not sure if it will turn out to be too complex to work. This is why this part especcially needs some work. It is, however, a very important part of the government model.
INTERCITY INVESTMENT
Capital will flow to where the profit is highest. This also includes other cities than the home one. Capital would have some kind of max limit of where it is willing to invest. Untill the 18th century this limit would not exceed the city borders - people will only invest in their own city. The max limit would grow rapidly, untill it covered the entire world in the sixties or so. Within the max limit investment would flow freely. This would mean that the profit in those cities slowly begins to move towards each other. The cities become more alike. When capital owners invest in other cities than their own they would create jobs there, but take the profit home toe their own city and demand goods there. You as the government could forbid your capital owners to invest in foreign civs (which would upset them) or you could forbid foreign capital owners to invest in your civ (which would make them happy, but upset other civs) or you could set a certain tax on foreign people investing in your civ.
The profitrate drops the more investment there has been made. This is because the price drops the more supply there is. This will also mean that in a free international economy capital will flow from places with a lot of available capital (developed civs) to places with only a little available capital (less developed civs). Just like in the real world.
GOVERNMENT ACTIONS
The economy runs on it's own. You don't HAVE to do anything. But to make the economic development go the way you want it to go, and to benefit from a thriving economy you have some tools to use. First of all you are able to buy stuff from your people. These are all the things you need to maintain your civ, like city improvements and units. I am not sure how to handle the city improvements in our game, but they would require labour, goods and raw materials. With units hiring the men would be seperated from buying the equipment. Here I will just handle the equipment. Each unit would have it's own equipment, which would cover everything they need. There would be one warrior equipment, one tank equipment etc. A unit would be 1 item of the equipment and the men. Equipment can possibly be stored, not quite sure. Equipment can also be sold to civs or bought from them. Of cause selling equipment to a civ would upset the civs in war with it. Equipment can also be transported between cities, like all other goods. I have not yet figured it out, but either the private sector produces equipment with a market price calculation, or the government simply hires some people for the production untill it's done. When making equipment you could choose to buy from the cheapest source, which would save you money, but might be foreign, or to buy it from a certain city, which would boost that city's economy. When making things with your own people as labour there would be two opportunities: Either you hire the people for the wage they would otherwise get. This would upset the bourgeoisie and the nobility a little as it would push the wages upwards, or you could force people to work for you at a wage that you decide, which would upset the workers a lot. In the last case you would need military units to keep the workers from rioting. The less money you paid them the more unhappy they would be. You could pay these workers nothing if you wanted, but this would mean that they couldn't buy any food, so they would all die the next turn. A slavery model is also needed for the game. Basically you decide whether to allow it or not, and then it would work on it's own. You could also use slaves. Slaves would come from your civ or from conquored cities, would only need food, but would need units to keep them from rioting.
One of the best things about this economy model is, that it allows virtually unlimited amount of economic management from the player. At the beginning of the game the player would decide how much involvement he wants. This goes from simply setting a global income/expences level to an extreme level of involvement, where you can set individual sales tax on each good in each city, or to make a progressional taxation system. All with realistic effects in the economy. You can also make tariffs between cities inside your civ. This might be needed in the early game, if the nobility was strong enough to forbid you to tax them. So if you wanted money to go to war and other stuff, you would need to get income from everywhere you can, even if it will halt the economic development in your civ. Your income is used to buy units, improvements, roads etc. It would also be used for more permanent expenses like paying administrators, scientist, public welfare for unemployed people and more. You could also use your money to start actual production of goods yourself, if you wanted to become a socialist/communist state. Here you can decide whether to simply use the market forces or to share the goods you produce evenly among your people. No matter what (but more if you used the latter one) you would need remarkably more administrators the larger your public sector gets. When starting production you might earn money on it. There should propably also be some other penalties for using public production, like slow supply changes and more.
Ok. This is it for now. I was hoping to have a more developed model to present to you, but as this will need a lot of more work I thought that I might as well get some responce from you guys, and use this for the next version.
It is a pretty rough start, but it starts from the basics and works it's way up. Unfortunately it is so complex that it is almost impossible to sit down and calculate what will happend the next turn via some know parameters. Therefor we will propably need some economy program (only text based) to balance it off, after the model has been somewhat settled, but before it is included in the game.
Ok, here goes:
ECONOMY MODEL VERSION 0.3
INTRODUCTION
Economy is one of the major factors in the game. Economy is the foundation that man y of the game's aspects. Trade, production, politics and much more. Therefor a good economy model is crucial for a good civgame. Civ2's economy system was ridiculously bad. Not only had it very little to do with reality, it also required far too much micromanagement, and it neglegted a lot of interesting options that could be possible with a good economy model.
Making a good economy model is, however, a very complex matter. Guildmaster showed us what economy should do. Now I will try to show how we could make it do that.
My economy model is based on real economic theory. It has only been slightly changed to meet the needs of a computergame. It is based on a microperspective, as it focuses on the individual consumer and producer. As far as I know this is the best way to calculate prices. Of cause I am no expert in economics. It should, however, generate some macroeconomic effects, which is good. The model is really complex and requires a LOT of calculations by the computer every turn (unless we find a more simple intercity trade system this number might escalate into millions of needed calculations). If this is a problem then we will have to figure out something simpler. If not then let's go!
DEMAND AND PRICE
The people of your civ are consumers. They demand goods. What they demand is determined by their income level. The more wealthy they get the more goods they demand. The basic price for 1 item of a good is 10 credits. This is the same for all goods. This price will, however, change due to the supply/demand situation. My basic population unit is 10,000 people. 10,000 people will eat 10 food per turn. Food is the basic good. People will buy food before they buy anything else. This will mean that the first 100 credits people get will be used to buy food, at the basic price of 10 credits per food item. When people's income rises above 100 they will demand other things. Maybe they will use the next 50 credits they earn for small consumer goods, to a total of 5 items of that. The next 30 could be used for clothes, the next 20 for more small consumer goods and so forth. This will mean that at a basic price of 10 credits per item a PU with an income of 190 credits demand 10 food, 6 small consumer goods and 3 clothes. How people get payed is described later. In the late game people will have incomes that are way larger than these. Today people will have incomes that propably exceeds 5000 credits. This will mean that they will demand loads of goods of all different sorts. When people get very high incomes they will also demand services, which will be delt with a little different than goods.
The demand changes when the price changes. The amount the demand drops when the price rises with 1 is called the elasticity of that good. If the elasticity is 100 then the demand will drop by 100 when the price rises with 1. This means that if the price is 15 then the demand will be 500 lower than the basic one. If the elasticity of a good is 20 and the price is 8 then the demand will be 40 higher higher than the basic one. The elasticity is individual for each good and will not change. I am not sure if this is a good system, though, as the demand is very different in a large city compared to a small one (a demand change of 100 with a total demand of 100000 is a lot different than if the total demand is 400), so perhabs using percentages is better, so an elasticity of 10 means that demand will drop 10% when the price rises 1. This system will mean that the demand graph will not be a straight line, but would get closer and closer to 0 as the price rises, but would never reach it. Or we could use a system where it drops 10% of the basic demand when the price rises with 1. This has the disadvantage that with elasticity 20 the price can never exceed 15. I am not sure what system we should use.
Supply of a good is the amount of it available in the city. It is determined before the turn and before the demand is determined and will not change untill the next turn. This will mean that no matter what the price is the supply is the same. I know that in economic theory supply usually rises when demand rises. But in the game I think that this should not be in the short run that a turn is. In the longer run supply will rise when the price is high. But this includes more factors, which I will explain later.
The city is the basic unit in the model. Demand, supply and price is calculated for each good in each city. I will therefor look at the individual city when explaining this: Via the income/demand algorithm, which is the same for all classes (there is different classes with different incomes and therefor different demands) the total basic demand for a good is calculated. The basic demand is when the price is 10 per item. The way the price is calculated is best shown via a simple supply/demand graph. The price is the x-axis, the amount is the y-axis. On this graph the supply is a horizontal line, meaning that it is a certain amount no matter the price. The demand is a line with the total basic demand as the amount at the price 10. The elasticity of the good is the inclination of the line. It is always negative. This all means that the supply and demand graphs will meet at a certain place. The price at this point is the end price. The new demand is the consumption. It is shared among the consumers, so each consumer gets the same percentage as it got from the basic demand. This is then done for each good.
If the elasticity of all goods were 10 (using the third elasticity system, although I am still not sure what we should choose) then people will use the same amount of credits on all goods no matter what the price, as a price rise would result in an equally sized demand drop. Of cause this is not always so. If the price on food goes up then people will not just demand less of it. In stead they would reduce their expenses on other goods and use more money to buy food. On the other hand if the price on champagne (not that it should be a good in the game, it's just an examble) suddently doubled then people might not want to spend as many money on champagne as they did before. In stead they might spend even less money on it, and in stead buy other things. All this has the effect that the end expence people have on different goods might not be the same as the basic one. This has the effect that people, when the demand for all goods have been calculated, might end up spending more or less money than they have. If this is the case then the demand will of cause have to change. If people spend more money than they have then they will reduce their demand on the "last" good that they buy (the one that they use their last money on after having bought food and the other basic goods). This will be done for all income classes and a new demand is calculated for some goods. This is put into the supply/demand algorithm, and a new price is calculated, so income and consumption will match. If people have spent less money than they have then they will spend more money on the basic goods (starting with food and moving upwards) if a high price has made them demand less of these goods than their basic demand is. Otherwise they will buy some more of the goods that they would have bought if they had a higher income. Again demand and price is calculated to make sure that it matches.
When a good has a low elasticity it means that it is an essential good that people really want. They will therefor go really far to get it, meaning that consumers will overbid each other, in an attempt to get more of the god. Of cause the supply wont change no matter how high the price gets, so people only makes it worse for themselves when they push the price upwards. The next turn, however, a high price will make the supply rise.
When there is a lack of food (less food than people eat) the price on food will be pushed upwards. The price system here needs to make sure that the upper class will push the price up to a point where the lower classes can no longer afford it, making sure that the upper class gets enough food and the lower classes get less food than if it was shared equally among the people. The same thing could happend with other basic goods. This will mean that it might be best for you in some situations to rationalize a good (divide it equally among your people) as it, in the food examble is better to have everybody eat 80% of the food they need (at which point they will still live) in stead of a small upper class get all the food they need when the rest of the people die and riot as they only get 50% of the food they need. Of cause there will also be disadvantages with rationalizing goods, which will be explained later.
SUPPLY AND INCOME
Before I described the supply as being a horizontal line. This is realistic when looking at one moment in time, as there is only a certain amount of goods available. In economic theory, however, supply rises when the price rises, as when the price on a good is high then a lot of people will want to produce it. I think that in our game it would be better to not do this, as it creates a much more vibrant and living economy when the supply changes over time. And it will change over time. Between each turn supply will change according to the price. If the price is high the production (supply) will rise, when it is low it will drop. Therefor in the long run supply will follow price. The lag in supply is what will make the economy dynamic. Without it it would be static. Excactly why supply follows price will be described later.
Production is started and run by the private sector (or sometimes by the government).
First I will look at production. As Cylon correctly mentioned you need some things to produce. These are:
Startup capital: The amount needed varies from good to good. To start producing cars or space shuttles you need a very high startup cost, where other sectors require only little. Some sectors would not require any startup costs. The startup costs is what makes trade between cities profitable. In stead of wasting lots of money to start production of all goods in all cities the cities can specialize in a few goods and then trade with each other, which makes sure that they can produce more and thus get wealthier. The startup capital will not depend on the amount produced, and would be required one time when starting production of a good in a city, unless the city stops producing the good. In that case startup costs are needed again for production of that good to start again in that city. Maybe the startuo costs should actually go to buying actual machines.
Raw materials and half fabrikata: These will also have a price, but here the producers would be consumers (normal people don't demand iron ore or raw oil). The supplyers would be either be farmers (in the case of cotton and such) or other producers, who work in the raw materials sector. Price will be determinated for this as it is for goods. The amount needed of this is determined only by the size of the production. The beauty of this is, that we can have an economic crisis developing realistically: a war in a major oil exporting country emerges, and blocks this country's oil export. The world supply of oil drops, the price rises and everybody will have to pay more to get oil. As oil is needed for a lot of different goods the production costs of these rises. This means higher prices and/or higher prices on goods, without the wages goes up. This means fewer goods for all.
Money: To produce 1 item of a good you also need some money. This covers all the small expenses that can not be put into any of the other categories.
Land: Although it is usually included in economic models I think we should rather include it in the startup capital.
Labour: This comes from the workers. Labour is treated as a good like any other. The supply is the total amount of people in the working ages in the city. There is, however, differences between the labour market and the other markets. First the supply wont change very easy. The only way this can happend is with more or less people. As it will take ~20 years for kids to be old enough to work, this takes long. Migration is also needed. We must develop a migration model, with living standards (amount of goods the workers can afford and the access to other things like libraries), distances and cultural differences as primary factors. The demand for labour will not be decided by the wages themselves, but rather on the profitrate of the production and therefor indirectly on the prices on the goods. The basic wage for 10,000 people is 100 credits in the beginning of the game. This will allow them only to buy the food they eat. If the wages for several turns in a row doesn't give people enough money to buy the food they eat they will begin moving to the rural areas, where they will become independant farmers.
Labour is propably the most interesting of the productive factors. Each 10,000 people unit would, as previously mentioned, get 100 credits per turn in the beginning. They would create 100 labour per turn. The wage would be changed by unemployment or lack or workers. This will either make the wage go up or down. The productivity (labour per people unit) would be decided by technology level (new advances would rise it), and would propably rise a little every turn (like 2%). This percentage would depend on how fast technological development is being made. There should be some way to replace labour with capital (by buying machines), and I am not yet sure how city improvements like factories (which should most oftenly be built automatically by the private sector) should be handled, but it should be possible to fit it into this system. The wages would propably rise as productivity rose. But it shouldn't be automatic. It should be possible to have wages that were low although productivity was high. We will need to find some way to calculate wages, including supply/demand, productivity and more. Labour unions (which you could allow or ban) would put the workers stronger, and would make sure that they would not decrease in wage. Unemployment welfare (a public expence - you would set the welfare at a certain level per 10,000 people group. This would mean that people would never work for less than 10% more than this level, which in itself could create unemployment). Perhabs we could include a few ecucation levels, and independant supply and demand for each of these. This could, however, turn out to be too complex.
A good would require certain amounts of each of the productive factors. Cars might have startup costs of 10,000,000 credits (this number might be way off), and 1 car item could require 1 iron, 1 oil and possibly more raw materials and halffabrikata, and 20 labour. This would be different for each good. Each city has different avalibility of each productive factor (some cities have loads of cheap labour, others a lot of free capital) and this determines what goods will be produced in what cities.
The private sector is divided into two types (apart from the nobility and the independant farmers who only produce food, cotton, silk and such. Food production would propably be handled in a slightly different way than the others, but would use the same rules. For now I am focusing on the production of manufactured goods), the bourgeoisie and the little bourgeoisie. The first are large producers with employees, the latter is small producers who work in their own company and have no employees. They would not have much capital. To portray this I have chosen to only let them work in sectors where no startup costs is needed. They would not recieve wage, but would get the surpluss they make. This will make them vulnerable in a crisis. The relationship between the bourbeoisie and the little bourgeoisie would be shown by the economic concentration level (EC). This would show the percentage of workers being employees working for the bourgeoisie. If it is 0 then all would be independant little bourgeoisie's. The EC would be determined by the economic factors, but generally It would rise unless you did something about it (it would be beautiful if the economy model could do this by itself). There would be an EC for both farmers and producers. The bourgeoisie would be a very little group, who didn't worked. Their number would be decided by the EC, but they would not be a part of the workers.
Trade is a special sector. Traders do not make any goods themselves. In stead they trade goods. For trade (everything but complete autarky) to excist traders are needed. 10,000 traders can trade x number of items per turn. The number would of cause need to be balanced, and would rise with technological advancement. As income traders recieve a certain percentage of the price the consumers pay for the good. The rest of the purchase price goes to the producer. Trade would not need any startup costs, so the little bourgeoisie could also work in the trade sector. Employed workers in the trade sector would get the same wage as all other workers.
SURPLUS AND INVESTMENT
Each class has a savings level (SL). It shows the percentage of the income after tax, that is used for investment. For the bourgeoisie and the little bourgeoisie this is very high, and for the workers it would be pretty low (0 untill they became really wealthy). The investment is used to start new production, to buy the neccesary raw materials and hire the necessary workers to make goods that can be sold the next turn or, if the potential sale is large enough, start production of a new good in the city. Again the little bourgeoisie would only operate in sectors with no startup costs. Every turn it is checked what the profit (sale minus expenses) for all goods in the city is. The most investment will be made in sectors where the profit is high. A simple calculation method is used to calculate the investment in each sector. If a sector looses money then the next turn there will be less investment made there. If in the previous turn 1000 credits were invested in a sector, but it only brings back sales of 800, then the next turn the investment in that sector will only be 800 credits. In a sector where sales equals expenses or where there is actual profit then there will be invested the same amount of money here as the last turn. The sectors with profit will also face an increase in investment. It will work so that the investment capital beyond the amount that was available the previous turn is pooled together, and shared between the sectors with profit. It will work so that the profit for each good is calculated and compared with the profits for other goods. Examble: In a simple world there is 1000 availible credits still to be invested, and 3 sectors with profit. The first gives a profit on 3 credits per 10 invested, the second 2 and the last 1. This means that the first recieves 3/(3+2+1)=3/6=50% of the availible investment, the second recieves 2/6=33% and the last one 1/6=17%. Note that in a sector with demand but no supply there will be no price and no comsumption. In that case the potential price (the price at which demand is 0) is used to determine a potential profit, and so investment is likely to be made in that sector.
Most investment would create profit. Every turn the total investment of each class would be calculated, the profit of this amount is calculated and sent back to the investing class as income shared equally between the class members. The total income is calculated, with the savings ratio a new investment amount is calculated and so forth.
INTERCITY TRADE
The city is the basic unit in the economy model. Perhabs we will later have to make it the province, to reduce the amount of calculations needed, but for now it will be the city. Each city would have it's own price on the different goods. Consumers would buy goods from the cheapest availible source, whether this is in the city or not. To move goods between cities some money would be needed to take care of the transportation. This amount depends on the movement points needed to travel between the two cities. This makes sure that roads and railroads reduces this cost, and that traveling 3 hexes across grassland isn't like traveling 3 hexes in thick jungle. Technological advances would reduce this cost. In the beginning of the game the movements costs would be high. This would make out-of-city trade expensive, and limit intercity trade to cities right next to each other. In the endgame movement costs would be reduced to virtually nothing, creating a world market price on most goods. Intercity trade might turn out to be highly complex, and involve millions of calculations every turn. I have therefor not yet figured out excactly how this would work. But of cause local suppliers would have to compete with out-of-city ones. If they can not they will loose market shares, production would decrease and unemployment would be the result. This would especcially be catastrophic for you if the supplier was foreign. This would mean that production would decrease in your civ and that your people's living standards would drop. But of cause, in the long run and in the big picture division of labour is good and raises the overall living standards.
When shipping costs makes intercity traded goods as expensive as those produced inside the city then these cities becomes one market for that/these goods. Of cause local goods would still have the advantage of not needing to pay shipping costs. But supply and demand would be calculated for these cities as a whole. Of cause this will prove to be very complex when several markets overlap each other. I am not sure if it will turn out to be too complex to work. This is why this part especcially needs some work. It is, however, a very important part of the government model.
INTERCITY INVESTMENT
Capital will flow to where the profit is highest. This also includes other cities than the home one. Capital would have some kind of max limit of where it is willing to invest. Untill the 18th century this limit would not exceed the city borders - people will only invest in their own city. The max limit would grow rapidly, untill it covered the entire world in the sixties or so. Within the max limit investment would flow freely. This would mean that the profit in those cities slowly begins to move towards each other. The cities become more alike. When capital owners invest in other cities than their own they would create jobs there, but take the profit home toe their own city and demand goods there. You as the government could forbid your capital owners to invest in foreign civs (which would upset them) or you could forbid foreign capital owners to invest in your civ (which would make them happy, but upset other civs) or you could set a certain tax on foreign people investing in your civ.
The profitrate drops the more investment there has been made. This is because the price drops the more supply there is. This will also mean that in a free international economy capital will flow from places with a lot of available capital (developed civs) to places with only a little available capital (less developed civs). Just like in the real world.
GOVERNMENT ACTIONS
The economy runs on it's own. You don't HAVE to do anything. But to make the economic development go the way you want it to go, and to benefit from a thriving economy you have some tools to use. First of all you are able to buy stuff from your people. These are all the things you need to maintain your civ, like city improvements and units. I am not sure how to handle the city improvements in our game, but they would require labour, goods and raw materials. With units hiring the men would be seperated from buying the equipment. Here I will just handle the equipment. Each unit would have it's own equipment, which would cover everything they need. There would be one warrior equipment, one tank equipment etc. A unit would be 1 item of the equipment and the men. Equipment can possibly be stored, not quite sure. Equipment can also be sold to civs or bought from them. Of cause selling equipment to a civ would upset the civs in war with it. Equipment can also be transported between cities, like all other goods. I have not yet figured it out, but either the private sector produces equipment with a market price calculation, or the government simply hires some people for the production untill it's done. When making equipment you could choose to buy from the cheapest source, which would save you money, but might be foreign, or to buy it from a certain city, which would boost that city's economy. When making things with your own people as labour there would be two opportunities: Either you hire the people for the wage they would otherwise get. This would upset the bourgeoisie and the nobility a little as it would push the wages upwards, or you could force people to work for you at a wage that you decide, which would upset the workers a lot. In the last case you would need military units to keep the workers from rioting. The less money you paid them the more unhappy they would be. You could pay these workers nothing if you wanted, but this would mean that they couldn't buy any food, so they would all die the next turn. A slavery model is also needed for the game. Basically you decide whether to allow it or not, and then it would work on it's own. You could also use slaves. Slaves would come from your civ or from conquored cities, would only need food, but would need units to keep them from rioting.
One of the best things about this economy model is, that it allows virtually unlimited amount of economic management from the player. At the beginning of the game the player would decide how much involvement he wants. This goes from simply setting a global income/expences level to an extreme level of involvement, where you can set individual sales tax on each good in each city, or to make a progressional taxation system. All with realistic effects in the economy. You can also make tariffs between cities inside your civ. This might be needed in the early game, if the nobility was strong enough to forbid you to tax them. So if you wanted money to go to war and other stuff, you would need to get income from everywhere you can, even if it will halt the economic development in your civ. Your income is used to buy units, improvements, roads etc. It would also be used for more permanent expenses like paying administrators, scientist, public welfare for unemployed people and more. You could also use your money to start actual production of goods yourself, if you wanted to become a socialist/communist state. Here you can decide whether to simply use the market forces or to share the goods you produce evenly among your people. No matter what (but more if you used the latter one) you would need remarkably more administrators the larger your public sector gets. When starting production you might earn money on it. There should propably also be some other penalties for using public production, like slow supply changes and more.
Ok. This is it for now. I was hoping to have a more developed model to present to you, but as this will need a lot of more work I thought that I might as well get some responce from you guys, and use this for the next version.
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