Economy: Product Nets 1/3

Like many people in the world, I like burgers.   If I were living in WorldSim, this is the burger I would like to buy (thanks to my wife, who liked the smiley burger clip art):

But how much would this magnificent treat cost me?  Well, in our economic model, we could assign it an arbitrary value, but making this consistent across many types of product would be quite tricky.  So instead, we define how the burger is made as follows:

If we can assign a cost to these components, then we can work out the base cost of making a burger.  A company can then just add a profit margin determined by its Decider to try and earn some money.  In reality, I can decide that these components can be further subdivided, to give a complete history of all the things that went into making the burger that I like so much:

Notice though, that from a real-world perspective, this is still quite incomplete:  where are the energy costs, travel costs, the cost of water?  Well, I've ignored these - I can make the product net as complicated or as simple as I like.

And this is what I propose for WorldSim - designers can define an economy based on creating networks of goods and how they feed into each other - at the base of the network there will probably be raw materials - in the above food example, the raw materials are raw ingredients that would emanate from farms.  For non-consumables, you can imagine having iron ore, gold, etc. as the base that might be supplied by mines.  These base costs, coupled with work costs and profit added by companies in the chain leading to the burger give a base cost for the burger.

Two things need to be highlighted:  there should be no need to have the raw materials within the city, nor should the player necessarily have to do any work to obtain them.  A market in raw goods should be simulated, as in real life where supply and demand drive commodity prices.  If lots of people suddenly start eating my happy burgers, the price of flour is going to go up and that will feed into the price of the burger.  Suddenly, we have inflation and the beginnings of a realistic economy.

The other thing that needs to be highlighted is the absence of certain necessary features from the product net definition.  We need a way of defining the kind of company that produces certain things.  For instance, a baker that might make burger baps, but is also able to make cakes, loaves of bread, etc. if these are available within our economy.  Finally, if we want to be able to  feed energy or travel costs into the price, we need a simple way of defining these costs since they can have multiple, mutually exclusive sources.  We will discuss the definition of company types and the expression of costs in the next post.

We also need a way of defining the demand for each output product:  how many people want to buy my burger?  This will mean generating demand from people, and this will require us to return to our social grouping definitions.  We'll have a look at this in one of the next two posts, depending on space.

I plan to bundle in an application to help define product nets graphically as above, so noone is going to be confined to defining an economy with some horrible text editor - the first of several tools that I'll have to provide!

Let me know what you think!

Fred

PS.  Apologies for the delays posting, but I'm currently writing up my thesis, and won't be done until the end of the month - consequently, writing in the evening doesn't inspire me a lot.  It isn't a loss of interest  though!