Our Friend the Neopoint

“Before the NeoCharge system,” the notice continued, “Neopoints entered the Neopian economy at a rate that was approximately 400% greater than the rate at which they left the economy!” Oh no! Many innocent Neopians fell for this “joke” for one simple reason – they weren’t aware of the principles of basic economics.

Many Neopets (and sometimes their owners) consider economics to be one of the more tedious subjects in Neoschool. However, those who have gotten past its mysterious use of strange words like “marginal utility” and “elasticity” have learned something important: economics is the science of how to make money. Once people understand how the economy works they make more money, make it faster, and most importantly don’t fall for pranks based on economics. Do you want to be one of educated Neopians? Then read on.

Economics deals with the economy, (note that the two words sound very similar), and the economy deals mostly with money. In Neopia, the first basic economic rule is this: Neopoints are your friends. Economics teaches people how to make money, and how best to use that money once you’ve made it. Because of this, it’s important to start off by learning what money is and why it’s there. And no, the correct answers aren’t “that yellow round shiny stuff” and “so you can show everyone how cool you are.” Imagine for a moment that money doesn’t exist. People trade items to get everything they need. Unfortunately for you, you don’t have anything in your inventory. (How sad.) But wait! Now imagine that you find a Pink Paint Brush. (Yay! Lucky you!) Unfortunately, your Grarrl doesn’t like the color pink – he’d much rather be painted Electric. So how do you get an Electric Blue Paint Brush? First, you’d have to find out how much your Pink Paint Brush is worth compared to an Electric Blue one. Let’s pretend some more: you somehow find three people who have Electric Blue Paint Brushes and want to trade. Any of them would be delighted to give you their Electric Blue Paint Brush for your Pink one, plus some extra items! One person offers (in addition to the Electric Blue Paint Brush) ten Codestones and a Rainbow Paint Brush; another person offers two Fyora Print Beds, and the last person offers three jars of his Grandma’s unique homemade blackberry jam. Oh boy. Now you have an even bigger dilemma. To find out which of these is the best deal, you have to find out how many Codestones, Rainbow Paint Brushes, Fyora Print Beds, or jars of blackberry jam your Paint Brush is worth. That means you have to find people who would be willing to pay in only Codestones, only Rainbow Paint Brushes, only Fyora Print Beds, or only blackberry jam for your Pink Paint Brush. As you might imagine, life could get really complicated really fast. That’s why the all-knowing Neopets Team gave us the Neopoint.

Here’s an interesting fact: Neopoints aren’t really worth anything. And no, just because I say that doesn’t mean I’ll give you all of mine. Here’s the basic idea: if you were marooned on Krawk Island, your millions of Neopoints wouldn’t do you any good. Why? Krawk Island residents use Dubloons, not Neopoints, for currency. What if all Neopians suddenly started to use Dubloons? Let’s hope they don’t, because then our Neopoints would all be worthless. You can’t eat Neopoints, you can’t wear them, and no matter how many you throw at your Neopet while he’s in the Rainbow Pool, he won’t be painted Gold. Sorry. The only reason people want Neopoints is because they’ve been arbitrarily chosen as the monetary units of Neopia. In other words, people want Neopoints only because Neopoints are money. And with money, you can buy anything that’s for sale. If everyone has agreed to use a particular currency, whether it’s Dubloons, Neopoints, or pretty shells, then that currency has value and becomes desirable to everyone.

But how does money work? Why does a Pink Paint Brush cost a million Neopoints, while a Tiki Tack Keyring only costs one? There’s a simple answer to that: the Law of Supply and Demand. Economics, like Neopia, uses laws to govern people. Unlike Neopia, however, economics doesn’t require monitors to make sure the rules are being followed. Everyone obeys the Law of Supply and Demand, just because it doesn’t make sense to do anything else! So what is this law? The basic idea is pretty simple. People pay more for rare items, and less for common items. If there’s lots of something, (a big “supply” of that item), then it will cost less. If lots of people want something, (a big “demand” for that item), that thing will cost more. For example, everyone can get a free Jelly or Omelette every day, so they only cost five or ten Neopoints. Items like Paint Brushes, which aren’t very common and disappear after you use them, are much more expensive. If Neopets gave every user a Paint Brush every day, there would be a huge supply of Paint Brushes in Neopia. Nobody would want to spend a million Neopoints to buy one. In fact, nobody would even be able to sell a Paint Brush for a hundred thousand Neopoints, just like nobody right now could sell a Plain Omelette for that sum. Let’s look at another example. Normally, you can buy an Icy Eye Snowball for about 150 to 200 Neopoints. But every time a war starts, the price skyrockets to 250 or 300 Neopoints each! The supply of snowballs hasn’t changed, but now everybody wants them so they can go kill the evil (insert the name of current villains here). There’s a higher “demand” for snowballs during a war, and so the price goes up.

Economists use a nice little graph to illustrate this point. It looks like a capital X. The line that goes from the bottom left to the upper right, (this one: /), is called the “supply curve”. (Yes, it’s called a curve even though it looks like a straight line.) The line that goes from the top left to the bottom right (the one that looks like this: \) is called the “demand curve”. The y-axis on this graph is “price” and the x-axis is “quantity”. This means that when the Price of an item goes up, Supply goes up and Demand goes down.

This makes sense logically. If one hundred people each find an Electric Blue Paint Brush lying on the ground, maybe one or two of them would be willing to sell theirs for fifty thousand Neopoints, but crowds of people would love to buy one for that amazing price. Maybe ten would sell it for a hundred thousand, and they would still find lots of users happy to get a brush for that cheap. About seventy or eighty of the hundred would be happy to sell the paintbrush for 300K, (its current price), and they would probably find enough Neopians willing to pay just about that much. And probably each of those lucky hundred people would love to sell his Paint Brush if he was offered five million Neopoints for it. But how many people would be willing to pay five million Neopoints for an Electric Blue Paint Brush? Not any.

The place where the demand and supply curves meet is called the “market price”. People are both happy to buy and happy to sell an item at the market price. In the case of the Electric Blue Paint Brush, the market price is about 300,000 Neopoints. If people charge more than the market price, their items won’t sell. If they charge less than the market price, they’ll miss out on profit they could have made.

Now that we know about how buying and selling works, let’s see what happens when there’s either too much or too little money in the economy. Now some people might say that there can never be too much money. After all, the more money there is, the more money everyone has! And the more money everyone has, the more stuff they can buy. Right? Wrong. Imagine that every day Neopets gave you one million Neopoints. Wow! Cool! Pirate Captain’s Cutlass ahoy! Now imagine that every day Neopets gave everyone one million Neopoints. That wouldn’t be so cool. Prices would shoot up faster than people could refresh their browsers. Why? Let’s take a look.

Right now, a Faerie Paint Brush costs approximately one and a half million Neopoints. Now, if you got a million Neopoints every single day, it would only take two days to get more than enough Neopoints to buy that brush. Unfortunately for you, the owner of that Faerie Paint Brush wouldn’t want to sell her valuable possession for the amount of Neopoints she could get in just two days. So what would happen? She would raise the price. Most likely, she would initially multiply the current price, (1.5 million Neopoints), by one million, to offset the increased number of Neopoints pouring into Neopia. In fact, she would have to raise her prices every day to get the best value for her item. The same thing would happen with every other good in Neopia. Even Omelettes and Jellies would probably be priced at least at a million Neopoints. This “too much money-ness” is called “inflation”. Currently, Neopian inflation is at 2.31%. This means that a thousand Neopoints can buy something now that will cost 1,023 Neopoints next year.

The opposite of inflation is “deflation”. This is more rare, but has just as big an effect on an economy. Imagine that suddenly half the games in Neopia were sent to the Game Graveyard. (Horror!) You’d expect, logically, that Neopians would now only earn about half as many Neopoints each day. What would this do to prices? If they went up when inflation happened, it follows logically that deflation makes them go down. And this is precisely what happens. Let’s imagine for a moment that before the tragic loss of half of Neopia’s games it took the average Neopian about a year to earn a million and a half Neopoints. Now let’s take another look at that Faerie Paint Brush from the previous paragraph. At its original price, it would now take someone two years to earn that Paint Brush. The seller would be very happy about this if she didn’t understand economics: after all, the amount of Neopoints she’d get from the sale would now be worth twice as much! But as you now know, (don’t you feel smart?) if (on average) people are only willing to pay a year’s worth of Neopoints for a Faerie Paint Brush, anything more than that would be over the market price. The seller would have to reduce her price for the Faerie Paint Brush by about half, or it would never sell.

So why do you need to know this? After all, not very many people go around finding Paint Brushes on the floor. (And as you have found out, that means there’s not a very big supply!) The answer has to do with three words: saving versus spending. Inflation encourages people to spend. Deflation encourages people to save. Why? Think about it logically. If inflation is happening, what will prices do over time? They’ll go up. If you keep all your money in a safe under your bed, it’ll be worth less over time. (The money, that is. Not the safe.) A thousand Neopoints right now can buy the same item 977 Neopoints bought last year. The year before that, it would have only cost 955 Neopoints. Next year, you’ll need 1023 Neopoints to buy that same item. If you kept all your money in that dusty safe under your bed, your savings would just keep on shrinking at a rate of 2.31 percent per year.

Similarly, if an economy is experiencing deflation, it encourages people to save. After all, why would you want to buy that rare item now, when it will cost less next year? You wouldn’t. In this case, keeping your money under your bed would make it be worth more, not less, over time. But if you were going to do that, a better place to keep it would be in the Neopian Bank. After all, the bank pays you every day for letting them store your money! And remember: only the National Neopian bank can keep your Neopoints safe from marauding Meepits or ravenous rabid Rukis. (Hey, it could happen!)

Now that you know the basics of economics, you won’t be fooled by those who insist that everyone would be happier if they were allowed to send games scores five times instead of three. Your understanding of market prices will refute the alarmist who whispers that all the Shopkeepers are part of a giant conspiracy to keep prices high. You’ll be able to immediately detect economics pranks. (In the instance of the April Fools Day prank, since we already knew that the inflation rate was 2.31%, the 400% growth in the money supply was actually a good thing!) Most importantly, the next time your Neopets whine that economics is boring and pointless you’ll know to remind them that economics is the science of making Neopoints. And Neopoints are every Neopian’s friend.