This came up in chat today, about how it could possibly be a good thing for the prices of upgrades in auctions to be dropping. So, since some people were confused in chat, I figured that probably translated to people on the entire game being confused. Thus, we will now have a mini discussion about macroeconomics! Hopefully this clears some things up for people, but if it doesn't, please ask questions (even if you think they might be stuid questions) and I will be more than happy to clear them up for you!

Okay, so let's get started!

Basically economies (in real life and on games) work like this:

Everyone agrees that an item, like an upgrade, is worth this amount in the current economy. So when more money enters the economy than is exiting the economy, the prices of things inflate. This doesn't mean that the items are worth more, it's the exact same item as before, it means that the money is worth less. In some ways it does, very much, have to do with supply and demand, but in our case, supply and demand has already more or less been determined by years of players buying and selling upgrades. That's how you get the original "worth" of an upgrade.

What an upgrade is hasn't changed right? It's still the same upgrade as before, so when people are paying more for them it doesn't ACTUALLY make them worth more, it just means that it takes more money to get the same value. So when prices drop it just means that HPD is worth more.

So you're technically getting a smaller amount of HPD for every dollar that you spend when selling an upgrade, but that smaller amount of HPD will take you further (buying tickets, shows, whatever) than it did before. So the lower price isn't ACTUALLY a lower price, the economy will naturally adjust itself so that you're still getting the same amount of things as before, but now they're just costing less.

We want prices to drop in an economy because inflated economies make it impossible for new people to enter the market. When prices inflate, but salaries don't, it makes it harder for those people to survive. In real life, you don't get a raise every time the price of gas goes up, you now just have less money than you did before. So when the prices drop, you don't get a lower salary, but now your money goes a lot further than it did before. And that also applies to HP.

Because when new players come on, they make whatever they make from the bank, and that doesn't change with the rise and fall of the economy. If it did, we'd have to print more money, and the more money that circulates the less EVERYONE'S money is worth. So, say you had 100 million HPD and you could buy an upgrade and a couple of graphics and some tickets with that, but then you take a break from the game, and you come back and the economy is inflated in the time you've been gone. Now your 100 million HPD is worth nothing and you can't even buy an upgrades with it.

It's like Germany after WWII. Basically, they had a certain amount of money floating around in their economy (all of the money they had printed so far). But after the war ended, they had to pay reparations to a bunch of other countries, and the amount of those reparations was a lot more than the total amount in their economy. So in order to pay them, they printed a bunch of money. So now they had something like 27 times more money printed, and that much more money running around in their economy. So when those countries that they had to pay said "okay, cool, now we want to exchange this for our currency" and they started spending it, all of that money was set loose into the German economy as things were bought and sold. So now every citizen had tons and tons and tons of money, but the money was essentially worthless because the prices of things kept going up and up and up. It got to the point where it was cheaper to burn stacks of money to make heat than it was to pay for the wood to burn to heat their house.

And that's sort of what's happening on HP with prices going up and up and up. They're not going up because the actual items are worth more, they're going up because the money is worth less. So it takes MORE HPD to get the things you need, which makes everyone worse off since making the HPD isn't any easier than it was previously.

So as money is pulled OUT of the economy, inflation reduces, which makes the money itself worth more. So think of it this way. If you have $5 and you go to the grocery store, it's not worth much, you can maybe buy some milk and eggs with it, right? But if money because more scarce in the economy and people have less of it, naturally the prices of things will drop, and all of a sudden the same $5 will buy you milk, eggs, and bread. Or in our case, more upgrades, better graphics, and more tickets/shows for a smaller amount of HPD. So that HPD that you might get from selling an upgrade, even though technically a smaller amount than you might have gotten before, it worth a lot more than it was before.

Does that hopefully clear some things up for those that may have been a bit confused?

Perfect way to describe it. Hopefully this does clear up some confusion. 

Sam...that has got to be the clearest explanation of macroeconomics I've ever read. I love you. 

*And I'm totally still giggling about the mini discussion of macroeconomics bit....yay wordplay!*

I remember back in secondary school my Econ teacher took about 4 months to explain what you did in a couple of paragraphs. Perfect explanation! 

That helped a lot. Thank you sam!

Very easy to read and understand :]

Awesome job!

Crystal clear explanation in layman's terms. 

:o

literally, that explanation was divine. thanks sam!