From all I've read from the devs, they have come up with a very nice and realistic economic model! Here's my summary, and a proposal to fix a potential problem with the model; namely, that it could drain cash balances out of the economy because POPs transact more units of goods when prices are high. Thanks to EntropyAvatar for their posts that helped push me on to think about this, by the way.
First, recall V2 if you've played it: every day, excess production was dumped in the sea, and excess demand was unfulfilled and forgotten about next day. Not so realistic. Furthermore, to dispel any notion that a price and quantity can be solved with supply and demand curves, the problem is demand curves. You'd need to model different willingness to buy across POPs and solve a bunch of complex consumption functions every day. (lachek suggests buildings lay off workers when prices are too low, so I think supply curves do actually matter.) Thus, any good system requires a bunch of abstractions.
The V3 system seems to work according to the following metaphor. Imagine a giant storehouse in the middle of the goods market. It is the buyer and seller of last resort, providing liquidity during temporary excess of supply or demand. This means demand always gets fulfilled every day, as long as the market is in long-term balance. During long-term imbalance, you have other systems like shortages, so I ignore this case in the discussion.
I think this metaphor of storage and warehousing works better than the alternative of imaginary buyers and sellers outside the system. First, those excess orders aren't actually making anyone happy or sad. Second, the outside participants would bring the market toward equilibrium price, which isn't happening in the game economy.
One non-obvious feature of the metaphor is that the flow of goods must be matched by a flow of money in the opposite direction. The imaginary storehouse tends to buy when there is excess supply and prices are low, and to sell when prices are high. Concrete example: imagine POPs and buildings always buy the same amount of grain for their needs, but the factories sell more during excess supply periods with low prices. Even if the goods market is in long-term balance of quantities, and so the market price is long-term around the base price, factories are earning less on average than the base price.
Therefore, I think that over time, goods market liquidity is draining money out of the rest of the economy, at a rate proportionate to the day-to-day volatility of production. Of course, this is the business model of any market-maker or commercial liquidity provider. However, it seems that no POP actually receives this flow of money; after all, the storehouse is even more imaginary than the rest of the concepts in this WIP computer game. I don't know if, in practice, this is proving an issue in the V3 economy for devs. In principle, it will drain wealth from POPs over time.
The neatest remedy I can think of is to assume that each building is doing its own storage during periods of excess supply, and selling onto the market during excess demand. You model this by giving buildings a daily income based on the number of actually satisfied buy orders, and not own day-to-day production. Allocation could be proportionate to shares of buy orders in the market. This way, cash does not leave the market, because buyers and sellers each receive cash of value Price * Demand each day. Of course, there are other potential remedies like the V2 system of liquidity injections through buildings.
Notwithstanding the long-term drain of cash, the storehouse is effectively stabilising the economy through cash injections and removals. So V3 does actually have monetary policy!
First, recall V2 if you've played it: every day, excess production was dumped in the sea, and excess demand was unfulfilled and forgotten about next day. Not so realistic. Furthermore, to dispel any notion that a price and quantity can be solved with supply and demand curves, the problem is demand curves. You'd need to model different willingness to buy across POPs and solve a bunch of complex consumption functions every day. (lachek suggests buildings lay off workers when prices are too low, so I think supply curves do actually matter.) Thus, any good system requires a bunch of abstractions.
The V3 system seems to work according to the following metaphor. Imagine a giant storehouse in the middle of the goods market. It is the buyer and seller of last resort, providing liquidity during temporary excess of supply or demand. This means demand always gets fulfilled every day, as long as the market is in long-term balance. During long-term imbalance, you have other systems like shortages, so I ignore this case in the discussion.
I think this metaphor of storage and warehousing works better than the alternative of imaginary buyers and sellers outside the system. First, those excess orders aren't actually making anyone happy or sad. Second, the outside participants would bring the market toward equilibrium price, which isn't happening in the game economy.
One non-obvious feature of the metaphor is that the flow of goods must be matched by a flow of money in the opposite direction. The imaginary storehouse tends to buy when there is excess supply and prices are low, and to sell when prices are high. Concrete example: imagine POPs and buildings always buy the same amount of grain for their needs, but the factories sell more during excess supply periods with low prices. Even if the goods market is in long-term balance of quantities, and so the market price is long-term around the base price, factories are earning less on average than the base price.
Therefore, I think that over time, goods market liquidity is draining money out of the rest of the economy, at a rate proportionate to the day-to-day volatility of production. Of course, this is the business model of any market-maker or commercial liquidity provider. However, it seems that no POP actually receives this flow of money; after all, the storehouse is even more imaginary than the rest of the concepts in this WIP computer game. I don't know if, in practice, this is proving an issue in the V3 economy for devs. In principle, it will drain wealth from POPs over time.
The neatest remedy I can think of is to assume that each building is doing its own storage during periods of excess supply, and selling onto the market during excess demand. You model this by giving buildings a daily income based on the number of actually satisfied buy orders, and not own day-to-day production. Allocation could be proportionate to shares of buy orders in the market. This way, cash does not leave the market, because buyers and sellers each receive cash of value Price * Demand each day. Of course, there are other potential remedies like the V2 system of liquidity injections through buildings.
Notwithstanding the long-term drain of cash, the storehouse is effectively stabilising the economy through cash injections and removals. So V3 does actually have monetary policy!
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