Economics 101

Recently, the Bonju avatar recipe was made widespread. This discovery caused a major economic shift, which in turn caused a major uproar on the avatar chat. Many users were furious that a r50 book went from selling in numerous shops for 2k to only being available on the trading post for about 1.5 million neopoints in the matter of a few hours. Some even wondered if this was an example of false inflation which would be against the Neopets Terms and Conditions. This event illustrates the law of supply and demand which determines the price of every item on Neopets. In order to make wise investments and be a knowledgeable consumer, you should be aware of how this law works.

To begin to understand this principle, let’s start with a situation we’ve all experienced. You have a codestone. You use the shop wizard to see how much it is worth, price it accordingly in your shop, and within a day it’s sold. We all know that not all items sell this fast. So why do codestones? It’s because of demand. People use codestones to train their pets for the Battledome. Training requires multiple codestones and they all disappear after use, so there is always a steady demand for these items. But, if there is high demand, why don’t codestones sell for hundreds of thousands of neopoints? That’s where supply comes in. Random events and Key Quest put a whole bunch of codestones into users’ hands each day so there are enough to go around and meet demands. If codestones suddenly weren’t available through these methods, prices would skyrocket.

So, you see both supply and demand work together to determine the price of items. So, to return to the Bonju issue, you’ll see that the book was not falsely inflated. Before, there was a large enough supply of the book to more than meet the demand. But, when it was discovered that the book was an avatar item, the demand for it greatly increased. Meanwhile, those who were buying the book were throwing it into the cooking pot for an avatar with no hope of getting it back. That shrank the supply. With a high demand and low supply, it’s no wonder the book’s price became so high.

So then if the Bonju book isn’t an example of false inflation, what is? Basically, it’s when an individual or group (though usually to work it would need to be a group) decide to raise the price of an item whose demand/supply levels haven’t changed. To make it convincing, they would need to buy the item in bulk thereby reducing the number of cheaper alternatives, and then try to sell them all at their new high price. This is essentially a form of scamming and is not allowed on Neopets.

Now, how can you use the law of supply and demand to your advantage? The best way to do so is to pick an item whose supply you anticipate will decrease or demand will increase, and buy it. Then you have to wait to see if your prediction was right. If so, you’ll be able to sell the item for a profit. This is actually a lot harder than it sounds. There are so many items in Neopia, it’s hard to even know where to begin with your predictions. To help you get started, let’s go through some different categories that are sure to make good investments.

1. Avatar Items: This is the Bonju example. When new avatars are first released, you need to try to be one of the first to discover or hear of the solution, and act. Buy the item(s) needed and hope prices increase.

2. Paint Brushes: Paint brushes are always in demand, but when a super awesome new pet gets released, even higher demand can suddenly grow for a certain color. A relatively recent example of this is the Spotted Lupe. When they were released, everyone wanted one and spotted paint brush prices soared.

3. Retired Items: When an item retires, it means no more will restock or be given out in random events, thus ensuring that it’s supply won’t increase. Chances are that some users who have the item will quit or get frozen over time, which will shrink the supply. This will eventually cause prices to rise.

4. High Rarity Items: Items with high rarities restock less often so their supply stays relatively low. This helps ensure that they will always be worth a nice chunk of neopoints.

5. Clothing: There is always a demand for pretty items for pets to wear, so clothing can be a great investment. You can watch the news for new items and try to be one of the first to get them or stock up on older non-wearable clothes and hope that they become wearable items with a hefty price tag in the future.

Once you have an item in mind, you need to get it for as cheaply as possible. Use the shop wizard, trading post, and auction house to your advantage. It’s best to buy in bulk since the more you have to sell when prices rise, the more profit you’ll make. Then stow your purchases in your safety deposit box and wait. Prices may rise slowly or quickly or not at all. If your item’s price does start to rise, you need to do some research to decide when to sell. To return to the Bonju example, clues in the editorial have led many users to believe that the avatar is seasonal. This means that months from now, the book won’t really be an avatar item, and demand should fall. Smart sellers who have done their research will be aware of this and sell at the opportune moment rather than waiting around for a few weeks for the perfect offer. Likewise, you need to research items you invest in to determine when’s the best time to sell.

Though we’ve just been discussing sellers, buyers also need to be aware of supply and demand. As a buyer, you want to purchase items for as cheaply as possible, so be on the lookout for events that might cause an item you want to become more expensive. For example, if you were considering buying a spotted paint brush when the Spotted Lupe came out, you would have been very discouraged by the dramatic price increase. But you should have evaluated the situation and realized that after the initial frenzy for the new pet was over, prices would begin to fall. In other words, now was not the time to buy.

As I hope I’ve made clear, the law of supply and demand is a major force in the Neopets economy. As both a buyer and seller, you need to be aware of how it works and try to use it to your advantage. Use this knowledge to evaluate situations and identify and avoid incidents of false inflation. Good luck in your endeavors!