Undercut Hell

[Keyln]

It's time for fun time with Economics, starring me!

To fully understand the economic underpinnings, one must understand that the type of market in FFXIV, at least on the market boards, are a perfect competition market. It can't be a monopolistic competition. It can be an oligopoly, but that's only true for relatively rare and high level crafting items. It can also be a monopoly, but that's difficult to create, and very difficult to maintain over a given length of time. Thus, it's important to realize that for most items, we're dealing with a perfect competition market.

With that said, the supply curve in a market economy is the quantity of a given good that suppliers will give at given prices. As prices rise, suppliers will supply a greater quantity of a given good. In a perfect competition market, the supply curve is an aggregate of all of the suppliers of a given good at given prices that they are willing to sell that good. The demand curve in that same market is the quantity of goods buyers are willing and able to buy at given prices. As prices rise, buyers will buy lesser quantities of a given good. The equilibrium point is where the supply curve and the demand curve meet. It is the optimum price point where the market can supply the quantity demanded without excess. Price above that point, and there is an excess of goods in the market, and things don't quite sell as fast. Below the point, and there is a market deficit, and things sell faster than can be supplied. The problem, though, is that the demand curves and the supply curves are in constant motion, making the equilibrium point move up and down.

This is especially true for durable and semi-durable goods. For durable goods, the demand curve will constantly move to the left, as demand is filled and does not need to be filled again. For semi-durable goods, the demand curves does move to the left like in durable goods, but can move to the right according to changes in the game.

As far as undercutting goes, it may be a signal that the prices are set too high, especially if the prices stick, and thus, the person who set their prices as high as possible will be left with a market surplus that isn't selling as well. On the other hand, if prices are set too low, such as below the NPC price, these market goods will sell very fast, and the person might not be able to meet the market demand. Undercutting is neither bad nor good from an economist stand point, rather it is a signal and a sign of where the market curves are, and where the equilibrium price is located.

Okay, now there will be a test on this next week, so I expect you guys to study. ;p