Learn 3 New Economic Concepts by Playing Video GamesDavid - About Money - July 06, 2020
This article is a follow-up to the previous one on the same topic.
It aims to present real-life economic concepts you can learn and experience by playing video games. Video games let you understand notions by playing with virtual money. Hence, they help you comprehend subtle mechanics by trial and error.
In this article, I intend to explain and break down simple economic concepts met in game and in reality. At the end, I provide you with a summarizing infographic and a practical exercise to apprehend all the concepts presented.
1. Individual Low-Cost Resources Assemble into Sophisticated High-Cost Products
When players progress, they need better equipment. Hence, they only have two choices to get one. They can either buy it or gather all the resources needed to craft each piece one by one.
On the one hand, looting all the resources on monsters is time-consuming yet economical. Provided that the player has the skills to build his equipment, he can gain experience and craft his stuff at the same time. Besides, the player can also buy individual resources instead of looting them because they are often cheap and common as they can be found on any monster.
On the other hand, buying all the pieces of equipment at once when the player needs it is time-saving yet expensive. Indeed, the player buys equipment but also pays for the efforts made by someone else to gather all the resources and craft it.
It works the same in real life.
Milk, eggs, and flour are cheap but if you assemble them into waffles for instance, you triple their value. You can get them at any supermarket and they're cheap. But if you put efforts into cooking a fancy meal, you turn these cheap resources into a valuable product.
It means that, if you can find low-cost resources which you can combine and enhance, you can make money selling them or save money by assembling them yourself. If you cook your meals on your own, for instance, you will pay less than if you were going to a restaurant.
It remains true even if restaurants charge meals but additional services as well. For instance, you could cook an omelette for two dollars worth of eggs, but it would cost at least three times as much in a restaurant.
As another example, if you fix a door lock on your own, you will not pay as much as if you were hiring a professional.
Takeaway: To save money or to make money, you should check the price of primary resources involved in the making of the product you need. Then, you should check out how to combine these resources to generate a profit.
A famous example of this concept is the smartphone industry. In the last decade, the number of people who repair their phones on their own skyrocketed. It has created thousands of companies dedicated to this specific business, such as iFixIt. Nowadays, people buy screens and screwdrivers to repair their broken devices. They save money by not hiring someone to do it for them. However, they have to learn it thanks to Youtube videos and online tutorials.
2. Competition Has a Direct Impact on Pricing and Quality
A convenient feature of massively multiplayer online video games is the public market. Before buying or selling an item, the player has an overview of how much it costs in every zone, and where he can get it at the lowest price. The player also has insights on the item's characteristics depending on the seller. Indeed, from a seller to another the price might change, but the power and strength provided to the player by the item might change as well.
It has a crucial consequence.
The player compares items based on two factors. The price and the quality, according to similar items on the market.
It means that sellers only have two options to stand out from the crowd and sell more of their goods:
It is identical in real life.
As a buyer, if you're looking for a new smartphone, you will establish a budget and find a device that fits into it. But if you find a smartphone of higher quality which is a little bit over your budget, you'll consider buying it. Besides, if you plan to buy a new smartphone you will always compare prices on different websites before making the purchase and try to find the cheapest seller offering the highest quality. Pricing and quality determine your willingness to buy a product at a given price.
As a seller, you will try to price your items according to market trends. It requires that you study competition, and check out what your competitors sell. It will have repercussions on your margins as well. Low-cost products needs cheap manufacturing, whereas expensive products require top-notch manufacturing.
Takeaway: To save money or to make money, you have to study competition. As a seller, you need to adapt your pricing, quality, and manufacturing costs to remain attractive to customers, in comparison to what the market offers at the moment. As a buyer, you have to look out for trends and average pricing over time periods to ensure you're not getting scammed and not paying too much for a product.
3. Announcements Have a Direct Impact on Pricing, Supply, and Demand
Players know it well. When game developers make an announcement toward an update, prices and demand tend to change. It happens because each update often brings a lot of modifications on items and characters. Hence, after an update, some players might be either advantaged or disadvantaged according to the character they play and the items they have.
If the next update makes a character weaker, players will want to sell all they have to focus on another character or strategy. Therefore, some items might decrease in popularity and get cheap as others become necessary and expensive.
Like always, this concept remains true in real life.
Every announcement made by companies and politicians triggers stock exchange fluctuations. For instance, if Donald Trump says that next year he will close every fishing port in the US, the fish market might crash, and fishers might sell their boats at an incredibly low price. Likewise, an airplane crash might have dramatic consequences on the popularity and sales of an airline.
Takeaway: Always keep up with the news. Check what's happening in the world and try to take advantage of external factors which are made public by companies and newspapers.
Start Making Money
First, you can practice each notion by following the detailed exercise given in this article on the same topic.
Then, I suggest you make a simulation and commit after a thorough case study.
Simulate a very simple business on paper by following these steps:
Define what you want to sell (prefer something you can craft on your own). Ideally, pick something which fits current market trends (search on google).
Look online if a company sells the same thing. If so, find how much it costs for a regular customer to buy a product similar to yours, depending on your geographic zone and selling channel.
Define how much your primary resources would cost.
Find out how much time and money you need to make a single unit of your product.
Set a small goal. 50 units sold within two months for instance, for a cheap product.
Is it sustainable? If yes, start your business and try to reach your goal by selling your products online or on the streets, or to friends and family. If not, take it all over and find something else.
In case you're doing good and feel like taking it to the next step, try to add a valuable asset to your product to enhance its quality or attractiveness. For instance, add an ingredient, a color, a symbol, a picture, etc.
Keep it simple. The goal is to let you go from a simulation to a down-to-earth simple business you can try out of the box.
Making crepes or waffles is a good idea for example. Primary resources are very cheap (milk, eggs, sugar, flour), it's fast and easy to produce in large quantities, and it sells very well.
Some ideas: sandwiches, wooden toys, shell bracelets, cocktails, origamis, handbooks, small drawings, etc
A Picture Is Worth a Thousand Words
This infographic briefly summarizes the concepts presented in this article. Feel free to download and share it.