Greedy Goblin

Friday, August 6, 2010

Comparative advantage

Tobold reminded me of this economic law. It's an interesting topic to write about, mostly because it says that every people on the World (no matter how weak he is) has a place under the Sun as worker (and not as welfare leech).

Imagine 2 players, one is a lvl 10-something, the other is a max level. For simplification both are miners and low level BS, leveling it. Their goldmaking options are doing (daily) quests and mining. They need gold for various reasons and copper ores to level BS.

The max level guy can get 300G/hour doing dailies. The lowbie can make 1G/hour doing quests. The max level guy can farm 5 stacks of copper ore an hour, while the lowbie can farm only 2 since he has no mount and monsters aggro on him. The max level guy is better in everything, so he is better of ignoring the lowbie right?

Wrong! Their goldmaking ratio is 1:300 while their copper making ratio is 2:5. Unless the two ratios are equal, there is place for trade. If they both farm 1 hour copper and 1 hour gold:
  • Lowbie: 2 stacks of ore, 1 G
  • Top lvl: 5 stacks of ore, 300G
  • All together: 7 stacks of ore, 301G
If the lowbie farm ore 2 hours, while the top level guy farms 0.8 hours ore, 1.2 hours gold and they exchange 2 stacks of ore for 60G:
  • Lowbie: 2 stacks of ore, 60G
  • Top lvl: 6 stacks of ore, 300G
  • All together: 8 stacks of ore, 360G
They are both better off with trade than without! The trick is that the weaker guy should focus on the task he sucks less in. Of course they don't have to make agreements in a well-oiled economy, as the AH and the market price will handle the situation. There is a price for the ore. Let's say it's 2G/ore. Then they have to think: what is better? 1G or 2*20*2=80G? Obviously the latter, so the lowbie is better off farming ores and selling them for gold. What is better? 300G or 5*20*2 = 200G? The former, so the top level is better off farming gold and buying ores.

Whoa! The invisible hand gives income to even the weakest, everyone are happy, right? If people would be rational, than they would be. However they are social. The lowbie is not happy that due to the existence of the top level he makes 80G instead of 1. He is envious because he makes 80G and the other guy makes 300. So due to inequity-aversion the weak refuses to work, despite he will suffer more due to the lack of cooperation. Luckily in WoW a lowbie can level to top pretty easily. In real world, he remains a poor and bitter M&S demanding welfare and babbling about the injustice of the World.


Taemojitsu said...

If a bot can harvest 15 stacks of copper ore per hour using a flying mount in Eastern Kingdoms or Kalimdor and a low-level player can only harvest 2 stacks per hour, the fact that it is still more profitable for the low-level player to farm ore than to grind same-level mobs will not reduce the discontent when a bot on a flying mount will reach 90% of copper nodes before they do.

There is a desire for the absolute advantage of having low opportunity cost to gather when resources are near quest sites and routes, to avoid feeling pressured to powerlevel in order to maximize total benefit to self and society over time.

TyphoonAndrew said...

In the example both players wish to level Mining. So the low level must aquire xp as well as ore and gold.

How do you factor in the xp goal, and the level restriction on professions in the larger equation?

Would it make a pragmatic difference? Not sure, but I don't think so.

The lowbie can still gather ore at a similar rate and slowly raise xp. Thereby gain gold and xp.

The high level toon continues to feed gold downward as it is more efficient for him to quest and buy while he can smelt ore for Mining points rather than actualy mine (to level ~300?).

Does that mean that the presence of the gap in level is important, but not the size of the gap?

Andru said...

A small unrelated add.

It seems that a massive banwave has hit at least some of the miner bots.

Saronite ore prices skyrocketed from about 15-20 g/stack to the prices of 70-100 g/stack.

Might be a momentary slump until economy recovers, but it was hilarious. (As well as annoying for me since that indirectly bumped up the prices of infinite dusts and essences, due to JCs/Ench like me not having a readily accessible supply of green amulets and rings anymore.)

Azzur said...

A small unrelated add.

It seems that a massive banwave has hit at least some of the miner bots.

Saronite ore prices skyrocketed from about 15-20 g/stack to the prices of 70-100 g/stack.

Might be a momentary slump until economy recovers, but it was hilarious. (As well as annoying for me since that indirectly bumped up the prices of infinite dusts and essences, due to JCs/Ench like me not having a readily accessible supply of green amulets and rings anymore.)

Damn, I've noticed this as well. Herb prices skyrocketed just yesterday. It's a pity since I was looking forward to milling heaps since the Darkmoon Faire has raised the demand for Snowfall Inks.

Bobbins said...

Copper Ore at 80g a stack?????
Surely you are not serious.

The example shows how the rich takes advantage of the poor. It is in the advantage for the level 80 character to keep the lowbie working mining copper.
The lvl 80 then has access to the copper a dirt cheap prices however as the 'comparative' advantage goes away a fair market developes.

However since unlike in real life your lvl 80 character cannot force lowbies to stay lowbies the lvl 80 in screwed by the fact he is no better then anyone else!

The 'rich' are only wealthly by the hard work of society as a whole not by their own work. Without the hardcore of grafters to support them the vast majority of physical wealth disappears.

Anonymous said...

Your analysis is totally wrong.

You've allowed the lowbie to optimize his behavior, but are not allowing the top level to do so.

Using all your assumptions:

both mine 1h, quest 1h.
* Lowbie: 2 stacks(60), 1G
* Top lvl: 5 stacks(150), 300G
* All together: 7 stacks, 301G, Total gold 611.

both mine .8h, quest 1.2h
* Lowbie: 2 stacks(60),60G
* Top lvl: 6 stacks(180), 300G
* All together: 8 stacks, 360G, total gold 600.

Clearly, the optimized strategy for the lowbie is to only mine. Whereas the optimized strategy for the top level is to only do quests and use some to buy ore:

Lowbie: 2 hours mining. Top level: 2 hours questing then spending half on ore:

* Lowbie: 4 stacks(120),0G
* Top lvl: 10 stacks(300), 300G
* All together: 14 stacks, 300G, total gold 720.

The lowbie, of course, also needs to level. Bringing him back to 61 gold.

There is no reason for the top level to care about, or deal with the lowbie at all.

There is ALSO no point for the lowbie to care about the top level.

What your point SHOULD have been is the need for 2.5 times more lowbies than top levels to achieve the optimized result. Instead, you assume there are only 1 of each and force the top level to cover the difference. This is where your error is.

If there are MORE lowbies than 2.5 to 1, then no top level ever need soil his hands mining. If there are LESS (Or they slack because they are too concerned what the top levels are doing) Then the top levels need to mine their own ore to compensate.

No cooperation is needed.

Anonymous said...

This doesn't really work in RL for some people.

If you're on welfare, you get L-money, and you can sit with your kids.
If you're working for W-money, you can't sit with your kids, because you have to pay babysitter (and pay them B-money), which means you are left with W-money minus B-money.

If W-money per hour is same as B-money per hour, and your travel to/from work is 2 hours, than you actually end up paying more than you made (as they look after kid[s] for additional 2 hours), leaving you with negative money.

Can you please explain how negative money is better than being on welfare.

Note that for someone to get off welfare, it would only make sense if their work-money minus babysitting money is greater than welfare-money.
Or if the work gives potential for more money. However, potential doesn't pay for apartment, so if after work-money minus babysitting-money they are left with less than welfare-money and are unable to pay for apartment, than welfare is a better alternative.

Yaggle said...

If the low lvl are really smart, they join together and form a union, and agree not to farm any copper unless they are paid 110g rather than 80g. Then, conversely, you will find that the lvl 80 character moans and whines about what is not fair.

Vesoom said...


Wow, what you said really hit home with me. I am a wealth wow player (nearly capped) and had not considered the economic impact of myself making money on the "lowbies".

It honestly never occured to me that buying their ore at the price they ask for it, because its not worth my time to mine, is harming them. As soon as I log on tonight I'm going to try to get all of my guildies and as many people as possible to stop harming the "lowbies" by buying their ore. Even though we're rich and generally make 6-800g/hr, we need to start farming our own ores so we can stop hurting the "lowbies".

Only when no one is exploiting and taking advantage of the "lowbies" by buying their ore will there be fairness!

Anonymous said...

In your example, if the lowbie sells all of his copper ore, he cannot use it to level blacksmithing. If he refuses to "work" (i.e., mine), he also fails to level blacksmithing since he cannot afford the mats on his own. There is also some utility for the max-level guy to spend time improving his mining skills so that he can be assured of a timely supply of materials.

"Luckily in WoW a lowbie can level to top pretty easily". Yet, if the weaker guy focuses on the task he sucks less in, he will never level because he spends all his time mining copper, effectively capping his income at 30g/hour (or price of copper*stacks/hour). Mining might maximize his current income potential, but that doesn't help him increase his potential income. In fact, it dooms him to competing with copper farm bots and every other lowbie who picks up mining.

Your analysis suffers from following the static model of international trade too closely. At a personal level, the assumptions of consistent demand and perfectly fluid allocations of labor and capital are less reliable.

The Gnome of Zurich said...

I don't know about your personal circle of acquaintances, but in the real world I'm familiar with, most people do, in fact, go to college or learn trades, and increase their ability to do work that the society values over what they were able to do at lvl 1 (teenager).

There are certainly a lot of people whose ability to learn is not as sharp as mine or most of my friends, but it's an unusual person indeed who does not learn at all, and expects to be taken care of completely. Those that are this way other than due to illness or handicap are generally thought of as losers.

Note, this is as true of poor people as it is of rich people. Oh, as a class, the poor contain plenty of slackers, but the majority are working hard to do better, but are either not very good at it, or starting from a seriously disadvantaged position.

Anonymous said...

I think that the important point of daily quest cap is missing. After 25? dailys doing them turns to 0g/h, while mining copper is 200g/h. Also, what about Tin and other ores that will fast become available to the max level if the purpose is to level mining? They are often found in the same areas as copper.

Andru said...

@ The Gnome

That is precisely true. Like in RL, a level 1 will suck if he is never told of the AH, of auctioneer or something else. For him to reach a bearable comparative wealth level, he must know that copper is in demand, and that he mustn't vendor it.

Education is very important. And unlike education in WoW where it's mostly free, education in RL is expensive and has the decisive disadvantage of competing with family.

If a poor person has the poor foresight of getting married before an education, and have a kid on top of that, then that is a real tragedy. He must work a grind job for the kid, take care of his family, and he will simply not have the energy to get a higher education.

David Caddock said...

Trade makes the whole pie bigger. When the pie gets bigger, your percentage portion of the pie could go down, but your slice's absolute size can, and probably, will increase.

Bobbins said...


In the example it is assumed that the optimum thing for the lowbie to do is to mine and to keep mining as this brings the most benefit to the character this is not so.
I dispute this by saying the optimum cause of action is to level and developed the character rather than specialise in order for him the increase his production.
Clearly your character wants him to mine and keep mining so you don't have to. Indeed you may even buy all his ore turn it into bars and charge a premium selling it back to the lowbie.

Lets look at real/game life you get 600-800g hr you now want some idiot to mine copper ore for you? Lets say he can get 10 stacks/hr which sells for 8g/stack so that makes him 80g. So he 'works' for ten hours you work for one.
So you are telling me that getting people to mine ore for you benefits them. NO! It benefits only you. You farm 1hr the lowbie farms 10hrs.
If the lowbie character could make 800g/hr it would mean the cost per stack goes up from 8g to 80g. But of course you could mine it yourself ;)

PS Nearly gold capped you must farm alot. WOW I'm really, really impressed. Hang on does this mean your not gold capped?

Andru said...

@ Bobbins

If this were RL, you'd be right.

As such since this is WoW we're talking about, I have to slam you hard for your leftist views.

It is not the goldcapped AH tycoon's fault that the low level is either uneducated or a moron about how AH works. The information on how to become a goldcapped player is available to anyone. Education in WoW is the ultimate socialist dream. It is absolutely, 100% free. (Barring the unavoidable opportunity cost in time. But then again, time is worth little to someone who's uneducated about how AH works.)

Chris said...

To all the people saying "But the lowbie will never level", part of the reason they mine fewre nodes is that they have a larger agro radius. This means mobs attacking them, which then need to be dealt with. Dead mobs result in XP.

He won't level as fast as if he was focused on leveling, but he will make some progress towards it.

Vesoom said...

"If this were RL, you'd be right."

No - But thats another conversation.

"I dispute this by saying the optimum cause of action is to level and developed the character rather than specialise in order for him the increase his production."

I completely agree with this statement.

"Clearly your character wants him to mine and keep mining so you don't have to."

I have no control over keeping someone doing anything in wow. And indeed you are correct I don't want to mine as I can make more g/hr in other ways. My disagreement is with the idea that it harms the lowbie for me to buy his copper. As long as someone feels that it is worth their time to mine and sell for 80g, they will be happy that I bought it. This is basically the exact argument that Gevlon made in the post. 80g is a lot of money for a lvl 10-20 character (at least it would have been for me), but its the difference between what the lowbie can make and what the 80 can make that is "unfair".

Try to explain to lvl 10-20 that making 80g/hr is bad for them and that they are being exploited because other players make more.