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Seems like I can't understand even the basics of supply and demand?

Author
JonnyRandom
#1 - 2012-08-16 15:54:33 UTC
Seems like this should be so simple to understand. The higher the demand, the more supply will try to meet the demand. If supply doesn't meet demand, then prices increase.
Yet, time and time again I find examples in the Eve market that just doesn't follow this.

For example, there was a spike in PLEXs because more people were resubscribing this expansion. Higher demand, higher prices. This makes sense.

But at the same time, some other things like, say, POS fuel prices are dropping. How come? More people playing means more demand for that as well, but instead prices are falling...

Then there's always things like modules that have very low demand, yet have ridiculously high prices on them. If demand is so small, why is the price so high?

Please don't laugh if this seems like 2+2 for you, but I didn't take any economics courses when in school, so this makes little sense to me. I'd appreciate it if someone could shed a bit of light on this matter.
corestwo
Goonfleet Investment Banking
#2 - 2012-08-16 16:01:35 UTC
JonnyRandom wrote:


But at the same time, some other things like, say, POS fuel prices are dropping. How come? More people playing means more demand for that as well, but instead prices are falling...


POS fuel is dropping because while demand is somewhat higher, supply is higher still - plenty of new miners mining ice.
JonnyRandom wrote:


Then there's always things like modules that have very low demand, yet have ridiculously high prices on them. If demand is so small, why is the price so high?


The price is so high because, due to lower demand, fewer people bother to produce it and so they can better dictate the price (assuming its manufactured) In other cases (drops etc) perhaps that item is just particularly rare which means that the few sellers again dictate the price.

This post was crafted by a member of the GoonSwarm Federation Economic Cabal, the foremost authority on Eve: Online economics and gameplay.

fofofo

Damion Saissore
Revenant Exploration Inc.
#3 - 2012-08-16 16:03:03 UTC
You're ignoring other factors, primarily speculation. If people think demand will rise or supply will drop, prices will jump. You also have to consider the possibility of market manipulation and the decisions of irrational people. Long story short, supply and demand is a good starting point, but is hardly the whole picture.
Sigras
Conglomo
#4 - 2012-08-16 17:57:08 UTC  |  Edited by: Sigras
You have the right principles, but youre not factoring in all of the variables.

IE yes you're right that more players coming back to the game means more demand, but youre forgetting that those players are also suppliers; some of them will come back and do PI, some will do ice mining, some will run missions, and some will do regular mining. The only thing that should go up is T2 because you cant squeeze more blood from a stone moon.

However all of this is far overshadowed by the recent changes to mining barges which made mining in high sec far safer for ice and regular ore, and the new alchemy change which broke the cartel on technetium.

You have the market principles right, you just need to factor in all the variables.
Srioghal moDhream
Perkone
Caldari State
#5 - 2012-08-16 18:07:47 UTC
You have to also consider that not of the demand shown in the market is real.

There are a lot of resellers, so they don't actually want the product unless they can make money on it. so as real demand slows their buy reduce in price and quantity.
Zoegah
State Protectorate
Caldari State
#6 - 2012-08-16 18:10:33 UTC
Actually it is the whole picture. Speculation and anticipation are just causes of supply and demand levels. Where ever supply and demand hits the same price, that is where price lands and trade happens.
Akita T
Caldari Navy Volunteer Task Force
#7 - 2012-08-16 21:13:17 UTC  |  Edited by: Akita T
JonnyRandom wrote:
Seems like this should be so simple to understand. The higher the demand, the more supply will try to meet the demand. If supply doesn't meet demand, then prices increase.

Actually, it's even simpler in most cases.
Supply ALWAYS meets demand, no matter what changes (be it supply or demand, be it increasing or decreasing).
BOTH the supply graph and the demand graph are affected in shape and/or position by changes in game mechanics and changes in metagameplay, and the direction of either one's change can be either way depending on what is now different.
Those graphs plot volumes vs price. Stockpiling is part of demand too, selling off stockpiles is part of the supply too, so speculation is already included by default.
The only things that change are traded volumes and trading price, and they are given by the intersection point between the supply graph and the demand graph.
Styth spiting
Brutor Tribe
Minmatar Republic
#8 - 2012-08-16 21:16:20 UTC  |  Edited by: Styth spiting
JonnyRandom wrote:
For example, there was a spike in PLEXs because more people were resubscribing this expansion. Higher demand, higher prices. This makes sense.

The prices could also be high because people are speculating on just this. People expect more resubs with PLEX and have there for bought up a ton of PLEX in hopes of making bank.

JonnyRandom wrote:

But at the same time, some other things like, say, POS fuel prices are dropping. How come? More people playing means more demand for that as well, but instead prices are falling...

POS fuel isn't dependent on the number of players in the game or resubscribing. POS fuels are based on the frequency of POS's being deployed (demand) and the number of people ice mining and doing PI.

Over the last month there has been a huge influx of people getting into PI because of its low cost/low maintenance. And with the new mining barge changes ice yields are higher with the ability to ice mining afk is far more easier. Both of these account for a massive influx of mats.

Once ice prices drop even further (they are going to get pretty damn low) we will see a ton of POS realted prices sky rocketing as more null / low sec corps start deploying POS's to take advantage of the new alchemy system, which will cause fuel prices to stabilize.

JonnyRandom wrote:

Then there's always things like modules that have very low demand, yet have ridiculously high prices on them. If demand is so small, why is the price so high?


Regardless of how much demand there is for an item the price will generically never go below their material costs (yes some people will, but generally it dosen't happen). Items like Medium cargohold optimizations haven't really dropped in price even though a huge portion of ships that use them (barges) no longer need them, this is because the materials used are also used on other items there for regardless of how low the demand is the price can't drop below a critial point of what the base materials are (otherwise people will just buy and re-process).


JonnyRandom wrote:

Please don't laugh if this seems like 2+2 for you, but I didn't take any economics courses when in school, so this makes little sense to me. I'd appreciate it if someone could shed a bit of light on this matter.


There are a ton of things that need to be considered with market related situations. You're looking at the eve market as a whole though the eyes of a consumer. You need to get past this "world view" and look at it from the standing point of a business, or a manufacturer and things will be much more clear.
Vaerah Vahrokha
Vahrokh Consulting
#9 - 2012-08-16 21:27:51 UTC
Akita T wrote:
JonnyRandom wrote:
Seems like this should be so simple to understand. The higher the demand, the more supply will try to meet the demand. If supply doesn't meet demand, then prices increase.

Actually, it's even simpler in most cases.
Supply ALWAYS meets demand, no matter what changes (be it supply or demand, be it increasing or decreasing).
BOTH the supply graph and the demand graph are affected in shape and/or position by changes in game mechanics and changes in metagameplay, and the direction of either one's change can be either way depending on what is now different.
Those graphs plot volumes vs price. Stockpiling is part of demand too, selling off stockpiles is part of the supply too, so speculation is already included by default.
The only things that change are traded volumes and trading price, and they are given by the intersection point between the supply graph and the demand graph.


People should stop and read the few posts out like this one.
This is a beginner lesson in market microstructure (big books have been written about it) yet it's more relevant than going after the latest news and rumors.

In any case, when you read new / rumors on the forum (like in RL news) it's already late to profit. Actually, so late you'll just be a liquidity provider to those who were in the business since a while.
Airto TLA
Acorn's Wonder Bars
#10 - 2012-08-17 19:46:12 UTC
Vaerah Vahrokha wrote:
Akita T wrote:
JonnyRandom wrote:
Seems like this should be so simple to understand. The higher the demand, the more supply will try to meet the demand. If supply doesn't meet demand, then prices increase.

Actually, it's even simpler in most cases.
Supply ALWAYS meets demand, no matter what changes (be it supply or demand, be it increasing or decreasing).
BOTH the supply graph and the demand graph are affected in shape and/or position by changes in game mechanics and changes in metagameplay, and the direction of either one's change can be either way depending on what is now different.
Those graphs plot volumes vs price. Stockpiling is part of demand too, selling off stockpiles is part of the supply too, so speculation is already included by default.
The only things that change are traded volumes and trading price, and they are given by the intersection point between the supply graph and the demand graph.


People should stop and read the few posts out like this one.
This is a beginner lesson in market microstructure (big books have been written about it) yet it's more relevant than going after the latest news and rumors.

In any case, when you read new / rumors on the forum (like in RL news) it's already late to profit. Actually, so late you'll just be a liquidity provider to those who were in the business since a while.



One very significant correction to this point, the reason why the market ssems to have behaved irrationally is what is known as a shift. In normal circunstances you move up and down a supply curve to match a point on the demand curve to reach equilibrium. This case the entire curves have shifted since more will be supplied at any given price then prior, this occurs because the underlying facts of the supply curve have changed.

In the real world this happens do to change in laws, changes in technology, and discovery of resources. In the game it happens when the Devs change the rules of the Game (in this case MINING BARGES and ALCHEMY).

Akita T
Caldari Navy Volunteer Task Force
#11 - 2012-08-18 00:21:15 UTC
I feel like nitpicking here a bit.
You're always going to get the intersection.
Unless the curves themselves change either position or shape, that point never changes.
So, no, you never "move up or down a supply or demand curve", you shift the supply or demand curve in some direction, or you change the shape of the supply or demand curve, so that the intersection point changes.
Phorneus
Imperial Academy
Amarr Empire
#12 - 2012-08-18 00:26:36 UTC  |  Edited by: Phorneus
Dear OP...

That is probably because the whole 'Supply & Demand' theory is a bunch of garbage... Its not even a law, theory or even a hypothesis.

The Supply and Demand crap is a friggin excuse used by a bunch of greedy bastards, they want to get more money and they build up the S&D excuse to wash their hands because the prices are going up for reasons beyond their control...

Have you notice that the market goes Haywire every time that CCP made some announcement...????? Incursions, Crucible expansion, Inferno changes, the mining barges revamp... The plexes for a Geforce 560 promotion... etc...

Break the status quo and everyone is going to go crazy, some people will try to do something outside the status quo, breaking things up if you ask me and a few other players are going to get a profit out of it...

Again, nothing to do with supply and demand because it was caused by CCP and the players took advantage of it... There is no such thing as an element beyond our control lol!... I let you know if a bunch of gremlins get into the market when the server goes down to maintenance...


High demand = Shortages... and some douche selling a few units for insanely high prices... Douche!!! because its the same blueprint, you still need the same amount of resources and the same time to mine them or the same money to buy the resources yourself....

High Supply = Atari video game burial
Huttan Funaila
Caldari Provisions
Caldari State
#13 - 2012-08-18 01:24:15 UTC
JonnyRandom wrote:
But at the same time, some other things like, say, POS fuel prices are dropping. How come? More people playing means more demand for that as well, but instead prices are falling...
There has been a large influx in PI and with the latest patches, a larger influx into mining barges. In this case, the supply is greater than the demand, so prices drop in order for folks to sell what they made.

JonnyRandom wrote:
Then there's always things like modules that have very low demand, yet have ridiculously high prices on them. If demand is so small, why is the price so high?
I suspect that you're describing officer/deadspace mods (the ones with purple in the upper left corner). Those modules are from very rare spawns. This makes the supply incredibly tight, and so the sellers can charge what they want and get that price. In effect, the high price reduces demand to where the market clears. Or some faction mods, like ORE mining lasers, come from LP stores out in null-sec - again so mad rare you won't see one except on a website.
Phorneus
Imperial Academy
Amarr Empire
#14 - 2012-08-18 01:34:00 UTC  |  Edited by: Phorneus
Ya, when the supply is high, every noob in the galaxy starts undercutting each other in the marketplace without thinking about how much time it takes for the PI stuff to be made... (plus taxes)... If the supply is high enough, the noobs are going to be noober... They will give you their stuff very cheaply or free!!!!!!! Later on the smarties can sell it for more in the market when all the undercutting fever goes away....
Herr Hammer Draken
#15 - 2012-08-18 14:05:20 UTC
Phorneus wrote:
Ya, when the supply is high, every noob in the galaxy starts undercutting each other in the marketplace without thinking about how much time it takes for the PI stuff to be made... (plus taxes)... If the supply is high enough, the noobs are going to be noober... They will give you their stuff very cheaply or free!!!!!!! Later on the smarties can sell it for more in the market when all the undercutting fever goes away....


Your point is what the above supply and demand people have missed. Their graphs of the intersection points only apply to just in time demand. Or immediate sales. Those willing to hold product for prices to change are off graph, product not exposed to market until the price is right.

Herr Hammer Draken "The Amarr Prophet"

Akita T
Caldari Navy Volunteer Task Force
#16 - 2012-08-18 14:42:36 UTC  |  Edited by: Akita T
Nope, the mistake is in assuming the shapes and position of the supply and demand graphs are ever steady for any noteworthy amount of time, as opposed to ever-changing.

Speculators, be it stockpiling or stock dumpers are already included in both supply and demand graphs shapes and positions, which constantly change both depending on the current state of the game mechanics AND that of the meta-gameplay.
Every person who hears a rumour, every new person getting into or out of the market, and every trade made, all of those things ever so subtly alter the graphs, and they do so very frequently.
Stockpilers are nothing more than an upwards bump in the demand graph (more prominent in the low price areas), stock dumpers are nothing more than an upwards bump in the supply graph (more prominent in the high price areas).
Vaerah Vahrokha
Vahrokh Consulting
#17 - 2012-08-19 15:53:09 UTC
Herr Hammer Draken wrote:
Phorneus wrote:
Ya, when the supply is high, every noob in the galaxy starts undercutting each other in the marketplace without thinking about how much time it takes for the PI stuff to be made... (plus taxes)... If the supply is high enough, the noobs are going to be noober... They will give you their stuff very cheaply or free!!!!!!! Later on the smarties can sell it for more in the market when all the undercutting fever goes away....


Your point is what the above supply and demand people have missed. Their graphs of the intersection points only apply to just in time demand. Or immediate sales. Those willing to hold product for prices to change are off graph, product not exposed to market until the price is right.


Those who are not in the market - for whatever reason - don't affect supply and demand at all. They are not just "off graph", they are "off", period.

The speculators in the market affect price. A large speculator / a number of smaller speculators (see patches) might go so far to believe somebody currently not in the market will be in there soon, and affect the market in anticipation of such event.
That's subtly not the same thing.

"Off graph" and "product not exposed to market until the price is right" sounds somewhat like the so called iceberg orders. But those creating iceberg orders are in the market, they don't sit out waiting for "price to be right".

Finally, price is always right. Because price is where supply meets demand and both are OK trading at that exact spot at that time.
Herr Hammer Draken
#18 - 2012-08-20 06:02:52 UTC
Vaerah Vahrokha wrote:
Herr Hammer Draken wrote:
Phorneus wrote:
Ya, when the supply is high, every noob in the galaxy starts undercutting each other in the marketplace without thinking about how much time it takes for the PI stuff to be made... (plus taxes)... If the supply is high enough, the noobs are going to be noober... They will give you their stuff very cheaply or free!!!!!!! Later on the smarties can sell it for more in the market when all the undercutting fever goes away....


Your point is what the above supply and demand people have missed. Their graphs of the intersection points only apply to just in time demand. Or immediate sales. Those willing to hold product for prices to change are off graph, product not exposed to market until the price is right.


Those who are not in the market - for whatever reason - don't affect supply and demand at all. They are not just "off graph", they are "off", period.

The speculators in the market affect price. A large speculator / a number of smaller speculators (see patches) might go so far to believe somebody currently not in the market will be in there soon, and affect the market in anticipation of such event.
That's subtly not the same thing.

"Off graph" and "product not exposed to market until the price is right" sounds somewhat like the so called iceberg orders. But those creating iceberg orders are in the market, they don't sit out waiting for "price to be right".

Finally, price is always right. Because price is where supply meets demand and both are OK trading at that exact spot at that time.


Correction and this is where you are very wrong. Those off grid do not affect supply and demand until they drop their product onto the market then they do impact supply and demand. There by they are to be considered when thinking about supply and demand issues. Example there are at least a 6 month supply of prebuilt Retrievers in game exsistance right now. However only about a 3 week supply is currently for sale the real market supply. The price is climbing because the over supply is not on the market.

Herr Hammer Draken "The Amarr Prophet"

Vaerah Vahrokha
Vahrokh Consulting
#19 - 2012-08-20 17:29:09 UTC  |  Edited by: Vaerah Vahrokha
Herr Hammer Draken wrote:

Correction and this is where you are very wrong. Those off grid do not affect supply and demand until they drop their product onto the market then they do impact supply and demand. There by they are to be considered when thinking about supply and demand issues. Example there are at least a 6 month supply of prebuilt Retrievers in game exsistance right now. However only about a 3 week supply is currently for sale the real market supply. The price is climbing because the over supply is not on the market.


I bolded the relevant subtlety.

Do they have 100 trillions worth of stock? If they are not in the market, the market goes on his merry way.

You and the "funny mentals" army spend valuable time fore-casting 1000 possible scenarios that don't happen and then the 1001th scenario happens, usually masterfully setup by the likes of Corestwo, Akita T and others.

"Supply and demand issues?"
There's no supply and demand issues, just price giving a good R:R trading opportunity or not.

"There are at least 6 month supply of prebuilt Retrievers in game... The price is climbing because the over supply is not on the market."

Please prove that there are 6 months supply of prebuilt Retrievers in game. Did you SEE this done or just believing some posts on a forum, created by the very market makers for their own agenda? (Example: scare everyone away from their market by making it show full).
You are buying rumors and not facts, this is one of the deadliest trader mistakes.
A possible FACT is that Retrievers are very good and are also used to make the even better Macks. Another is that people built a ton of them at pre-patch materials amounts and now can dump them below production cost and still make a nice profit. End of possible FACTs. FACTs I also contributed to inflate a bit on my own when I needed to dump a bunch of stuff, just saying.

Price is climbing because you and many others are buying rumors. All the succesful speculations are made of an underlying fact (1 kilogram) nicely overlayed by a 100 ton brick of rumors.

Now, feel free to play the Free Liquidity Provider role, other guys have all the aces.
Akita T
Caldari Navy Volunteer Task Force
#20 - 2012-08-20 22:08:15 UTC
Herr Hammer Draken wrote:
Correction and this is where you are very wrong. Those off grid do not affect supply and demand until they drop their product onto the market then they do impact supply and demand.

Do you understand the concept of a "volume vs price" graph for both supply and demand ?
Now tell me, WHEN will stockpilers choose to stockpile, and when will they decide to dump stocks ? Isn't it at some more or less specific prices far off from the current price ?
So what's stopping you from figuring them into the graphs as a very abrupt section near the edge of the graph ?
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