What is relative value?

Relative value is how much something is worth compared with something else. A price is a relative value because it states how much of one good is exchanged for another. It matters because decisions depend on comparisons: whether a thing is cheap or dear is judged against alternatives.

How it works

Two items can both rise in price and still change in relative value, if one rises faster. When the relative value of a good rises, people buy less of it and more of substitutes, and producers make more of it.

Relative values also explain inflation's uneven effects. If all prices and wages rise by the same percentage, relative values are unchanged, but when they rise unevenly, some groups gain and others lose. Relative value also explains why exchange rates, wages and asset prices matter in pairs. A salary that rises 3% is a gain if prices rise 1% and a loss if they rise 5%, because the value of the pay is judged against what it buys.

Example

Say a loaf of bread costs 2 and a liter of milk costs 1, so one loaf is worth two liters. Next year bread costs 3 and milk 1.20. Both rose, but a loaf now equals 2.5 liters of milk, so bread became more valuable relative to milk. Buyers may switch toward milk and farmers toward wheat. Illustrative numbers only.

In a game economy, a sword that costs 500 gold is worth more relative to potions at 10 gold than to houses at 50,000, so how players value it depends on what it is compared with.

How to model it in Machinations

Use Registers to hold the prices of two goods and another Register that divides one by the other. Use a Trader to exchange the goods at that ratio and a State connection from the ratio to demand. Make a price a Lever, Play, and chart the ratio and the quantities.