Price Elasticity of Demand

About this model

This diagram models the dynamic interplay between supply and demand in a virtual economy, with a particular focus on the effects of price changes on player behavior and item valuation. Sources within this graph initiate the flow of resources representing currency, which then interact with pools designated as "Item Price" and "Player Demand," simulating market transactions and consumer interest in specific items. The inclusion of registers such as "% Price Increase," "% Demand Drop," and "Price Elasticity of Demand" allows for the calculation and adjustment of prices and demand based on player actions and market conditions. Drains represent the consumption or depreciation of goods, reflecting a decrease in supply or demand.

The system further explores economic concepts through differentiation between types of goods: normal, luxury, inferior, and substitutable goods, each with distinct elasticities affecting how demand responds to price changes. For example, luxury goods see an increase in demand as players' purchasing power grows, whereas demand for inferior goods decreases. The diagram also employs mechanisms to simulate the impact of sudden market changes on demand, such as a "Demand Drop" pool that reduces player demand in response to external factors. This economic model captures the complexities of a virtual market, analyzing how various factors, including pricing strategies and the nature of the goods offered, influence overall market behavior and player engagement.

"Price Elasticity of Demand" is a public Machinations diagram shared in the Community by Harry Ashton, with 69 components.

It was created in June 2023 and last edited in June 2023.

Open the diagram in the Machinations app and press Play to watch the resources move, adjust its values to test how the system responds, or remix it to make an editable copy in My diagrams.