Ok. Economics folks.

[khariste]

There’s an awful lot of armchair economics being touted around on the boards, and this needs to be cleared up.

One of the most common and deceptive arguments being made around here revolves around “profit.”

Profit is an interesting concept in many ways, but I’ll simplify it here into its two mainstream definitions: accounting profit, and economic profit.

Accounting profit is the form of profit most people are familiar with: Monetary revenues less monetary Operating Costs.
Economic profit is a measure of Total Revenues less Opportunity Costs.

It is important to make the distinction, because the two represent very different measurements.

It is possible to sustain an accounting profit while not making an economic profit. As an example, consider this: You have two options, A and B. Both require an investment of $100. Your yield for option A will be $110, while option B will be $111. While both will yield accounting profits ($10 for A, $11 for B), only one will yield an economic profit. Conversely, it’s also possible to have an economic profit while still exhibiting a negative accounting profit (net loss), as economic profit simply measures the best possible outcome of those being studied.

The accuracy of economic profit is limited to the degree that opportunity costs are both accurately identified and reasonably estimated. In theory, that is, in classrooms and universities, economic profit is a useful tool for understanding the concepts of management, opportunities, costs, and so on. In reality, economic profit falls by the wayside as it is nigh impossible to accurately identify and assign costs to esoteric opportunity costs in a corporate environment.

This fact is evident to anyone who has ever prepared financial statements as there is no line item on an income statement for “opportunity costs.”

Alright, so what does all this have to do with Aion?
Well, for the most part, it’s annoyance at the gross misrepresentation of members of this board in regards to the field of economics.

Take, for instances, the following argument: If you sell an item at below the combined selling price of all the materials, you are not making a profit.
Let’s evaluate this statement from the standpoint of both forms of profit, assuming that the selling price is still greater than the cost of components.

From an accounting profit view, this statement is utterly and completely false. Accounting profit is simply the total monetary revenues less the total monetary costs. As long as price > cost, there exists a profit. Any argument about opportunity of efficiency does not come into play here.

So clearly, it’s true for economic profit, right? Wrong. To understand this, revisit what economic profit is composed of – Total Revenues less total Opportunity Costs. Total revenue is composed of both monetary compensation and utility received. Utility, for those who need a refresher, is a measurement of satisfaction. As money received is a form of satisfaction, we can rewrite the equation as: Total Revenue = Total Utility received. Opportunity cost is a measure of the Total Revenue forgone by pursuing the current option. Utility is difficult to measure, but it can be estimated fairly easily. Before we do that, though, let’s revisit some of the core fundamentals of economics.

First, people are different
Second, people always attempt to maximize their utility.
As people are different, they will each have different goals when maximizing their utility.

Alright, let’s return to our previous discussion. As we know, people will attempt to maximize their utility, therefore attempting to maximize their Total Revenue, of which money received is only a portion. Therefore, we can reasonably assume that no matter what engagement someone invests themselves in, they are always maximizing their currently perceived best economic profit . Let me repeat that in a more broad sense: It’s impossible, in the grandest of scales, to not achieve an economic profit on the personal level as by the very nature of economics, people always engage in the activity which yields the greatest economic profit.

Therefore, the above statement that someone does not make a profit by selling an item at a cost lower than the selling cost of the material components, is false. It simply means they are being monetarily inefficient.

Let’s recap this last part with a metaphor, and estimate a utility value while we’re at it.
Suppose your father wants a birdhouse (or brother, or mother, etc etc.). While they are very much aware that they could buy one from wal-mart for $25, they decide to build one from scratch for $40. There must be some other cost, then, associated with the wal-mart house if he decided to build the birdhouse. Afterall, if there isn’t, then the entire field of economics has just been proved wrong and fallen flat on it’s face. This isn’t the case though, because we associate a satisfaction with building something with your hands as an economic input in the form of utility. The cost the wal-mart birdhouse, then, is $25 + anything greater than $15 in the opportunity cost of utility. In this manner, we’ve established that the utility received from building a birdhouse by hand is at least $15.01.
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Alright, so let’s wrap all this up into a nice little conclusion. We’ll call this the TL/DR section as well.

The point is this: Economics is a field which studies money, it describes a situation, it does not make any suggestions on how to maximize profits. Economics simply explains how and why people act the way they do when transactions occur. Of particular note is that, while economics primarily relates to money, the lessons of economics apply to all interactions where there exists a tradeoff between cost and benefit. Claiming that someone “doesn’t know anything about economics” because they “ignored the opportunity cost of X” simply illustrates the speakers own misunderstanding of economics and indeed the very concept of opportunity cost, let alone the fundamentals of economics to begin with.

If you wish to go down this path, then you willingly ignore what is written in most Economic 1A textbooks: People will always maximize their utility. You essentially defeat your own argument.

So please, don’t bring “economics” into a discussion about managerial accounting.

[Chillbro]

thanks...i guess?

[ChuMann]

While most people won't read this whole thing, I did, and I quite liked it.

I'm not an economics major, student, or even enthusiast... but I am an accountant IRL.

The problem with the concept of economic profit is all but mooted in an MMO such as this one. Example...

I hate Walmart. I despise it. If Wal-Mart is selling Widget for $10 and Target is selling Widget for $20, I will buy from Target for reasons too lengthy to mention here. There are too many variables involved in economic profit in RL to count. In an MMO setting, many of these variables are lessened or completely negated, such as:
1) Customer Service
2) Convenience
3) Ability to earn Purchasing Income
4) Exaggerated Inflation
and there are countless others.

The fact is that in an MMO, Accounting Profit is 99% of the driving force of the economy. I would go so far as to say that if crafted goods didn't carry the name of the crafter on them, then even more of the driving force would be traditional profits.

You also seem to have neglected to consider time spent on crafting vs. time spent on farming in your economic profit calculations.

IMO, goods are too similar, too easily reproduced, too easily traded, and too conveniently purchased to have an argument for the effects of economic profit in Aion.

I stand by my theory... Current Crafting in Aion is rarely if ever, more financially or economically profitable to 99% of the playerbase than grinding or market trading. Raw materials cost more than the finished products that need them.

Crafting in Aion = The sum of parts > The whole

[lorax101]

As someone with a BA in Economics, I heartily approve this last post... Heh, maybe some people in Econ101 will actually do better in their respective classes from this little example

[BlueMoon]

95 percent of the people who read this won’t understand any of it. That is if people will even read it… the post to WAY too long. MMO-ers have short attention spans.

In layman’s terms I think you were trying to say that people are dumbdumbs for selling items for less than then it cost to make them.

[RamzaBehoulve]

I don't care.

People are simple minded, if you try to explain the way you just tried, they won't read and even less listen.

Telling them they are not making a profit rings a bell in their head and they change their behavior immediately once they heard it because it makes sense and is easy to understand.

And by the way, managerial accounting is part of Economics.

Economics is a science with many subfields. If you want to be precise, yes, managerial accounting is more correct, but Economics is wider and easier to understand for lab rats..err sorry, I meant normal people.

[Jodine]

TL/DR
don't craft

[ChuMann]

Originally Posted by RamzaBehoulve

I don't care.

People are simple minded, if you try to explain the way you just tried, they won't read and even less listen.

Telling them they are not making a profit rings a bell in their head and they change their behavior immediately once they heard it because it makes sense and is easy to understand.

And by the way, managerial accounting is part of Economics.

Economics is a science with many subfields. If you want to be precise, yes, managerial accounting is more correct, but Economics is wider and easier to understand for lab rats..err sorry, I meant normal people.

It's so awesome to have an elitist prick to set us straight when there are yet more people who can prove that crafting isn't profitable OR as profitable as people who mindlessly grind mobs.

This game rewards the mindless droves of people with ADD or those too ignorant or too lazy to craft.

[khariste]

Originally Posted by RamzaBehoulve

I don't care.

People are simple minded, if you try to explain the way you just tried, they won't read and even less listen.

Telling them they are not making a profit rings a bell in their head and they change their behavior immediately once they heard it because it makes sense and is easy to understand.

And by the way, managerial accounting is part of Economics.

Economics is a science with many subfields. If you want to be precise, yes, managerial accounting is more correct, but Economics is wider and easier to understand for lab rats..err sorry, I meant normal people.

Ansolutely NOT! Managerial accounting is not part of economics anymore than astronomy is part of astrology.


Accounting and Economics are intrinsically different fields. You simply need to look at the definitions of each to realize this. There are entire university courses devoted to highlighting the differences between the two fields.

Economics is the study of human decisions when faced with scarcity. It developed originally out of philosophy and eventually branched out into what it is today. Economics focuses on two fields and only two fields, macro and microeconomics. To do so, it makes underlying assumptions to simplify scenarios in order to reasonably understand the decisions which take place in them.

Accounting is a systematic approach to analyzing, presenting and recording financial exchanges. It uses NO assumptions and makes NO attempt to understand WHY the transactions took place, this is what economics is for.

Look at any accredited university and you’ll most likely find a class called “Economics of Accounting.” This class is devoted to applying economic concepts to accounting.

[Spladian]

In real life - if you constantly sell at a loss, you will go out of business. There is no incentive to sell at a loss, unless its your loss-leader (example - selling razors very cheaply and losing money , but the razor blades are expensive and making money.) In Aion, selling your product at a loss could be beneficial for a crafter trying to skill up. If the market demands below cost sales, the crafter will sell below cost to recover whatever money he can, to continue to craft. He has incentive to sell at a loss - crafting skill ups. Why is this so hard for all you mucky-mucks with degrees to understand?

[khariste]

Originally Posted by Spladian

In real life - if you constantly sell at a loss, you will go out of business. There is no incentive to sell at a loss, unless its your loss-leader (example - selling razors very cheaply and losing money , but the razor blades are expensive and making money.) In Aion, selling your product at a loss could be beneficial for a crafter trying to skill up. If the market demands below cost sales, the crafter will sell below cost to recover whatever money he can, to continue to craft. He has incentive to sell at a loss - crafting skill ups. Why is this so hard for all you mucky-mucks with degrees to understand?

You are describing sunk costs. I’m perfectly aware of this mechanism and have cited it in other posts. It doesn’t have any bearing no the OP but I did consider talking about it as well.

Sunk costs - Wikipedia, the free encyclopedia

Sunk_costs

[Hypo]

Originally Posted by khariste

Ansolutely NOT! Managerial accounting is not part of economics anymore than astronomy is part of astrology.


Accounting and Economics are intrinsically different fields. You simply need to look at the definitions of each to realize this. There are entire university courses devoted to highlighting the differences between the two fields.

Economics is the study of human decisions when faced with scarcity. It developed originally out of philosophy and eventually branched out into what it is today. Economics focuses on two fields and only two fields, macro and microeconomics. To do so, it makes underlying assumptions to simplify scenarios in order to reasonably understand the decisions which take place in them.

Accounting is a systematic approach to analyzing, presenting and recording financial exchanges. It uses NO assumptions and makes NO attempt to understand WHY the transactions took place, this is what economics is for.

Look at any accredited university and you’ll most likely find a class called “Economics of Accounting.” This class is devoted to applying economic concepts to accounting.

Haha, pretty much owned.

[Rash]

I can tell the post was partially aimed at me.

Very well then; I was wrong. I guess I was just wording it differently, but I definitely agree with "It simply means they are being monetarily inefficient."

I always hated Econ anyways; only took one course.

(And I did read the whole post, word for word)

[RamzaBehoulve]

Originally Posted by khariste

Ansolutely NOT! Managerial accounting is not part of economics anymore than astronomy is part of astrology.


Accounting and Economics are intrinsically different fields. You simply need to look at the definitions of each to realize this. There are entire university courses devoted to highlighting the differences between the two fields.

Economics is the study of human decisions when faced with scarcity. It developed originally out of philosophy and eventually branched out into what it is today. Economics focuses on two fields and only two fields, macro and microeconomics. To do so, it makes underlying assumptions to simplify scenarios in order to reasonably understand the decisions which take place in them.

Accounting is a systematic approach to analyzing, presenting and recording financial exchanges. It uses NO assumptions and makes NO attempt to understand WHY the transactions took place, this is what economics is for.

Look at any accredited university and you’ll most likely find a class called “Economics of Accounting.” This class is devoted to applying economic concepts to accounting.

Professors around here tell me otherwise.

If you want to go into the deep definition of the english language go ahead, but where I live (Switzerland, which is kind of a big economic pole as far as money is concerned, right?), Economics and Managerial Accounting are part of the same year plan, lectures and there is no specific course to point the differences between them. We use Economics as a wide definition for anything around money transfers and social behaviors concerning money.

You can however specifically subspecialise into management or accounting.

Hell, in my field, we don't even bother saying Biotechnology to people around us, we just say biology or life science because that's what normal people have a clear idea about yet there is quite a difference between them as well.

And you missed the point completely, noone cares about little details between economics and managerial accounting. If anything, very few people reading this board knows the real difference. Only one thing matter to a person playing a game : do I really make money or am I losing potential money by acting this or that way?

So anyway, you can argue all you want about economics vs management vs accounting or even the different profit names and what not, but that's still not going to get people to act any smarter than bluntly telling them they fail economics 101 and you explain in 5 lines what's it's all about.

Good luck educating people on internet using logic and high level explanations, I gave up a long time ago and you should too. Besides you've had a personnal grip against me ever since I made a real profit with Weaponsmithing. So I'll let you at your arguing with the internet geniuses around here complaining about every damn thing.

PS : I completely fail to understand how you cannot make any kind of money in this game from crafting with your apparently high lvl of economics education /shrug

[khariste]

Originally Posted by Ramza

Professors around here tell me otherwise.

I’m sure your professors tell you many things. I’m just as sure from your conversations here that you don’t listen to any of it.

Originally Posted by Ramza

You can however specifically subspecialise into management or accounting.

Let’s go ahead and forget that “Subspecialize” isn’t a word (or that it’s redundant).
You can specialize into Economic History from the economics department of the university I graduated from. Does that mean that History is part of Economics? By your reasoning, any field which uses applied economics is a subset of the Economic field. By that logic, every field of study would be part of economics.

Originally Posted by Ramza

Hell, in my field, we don't even bother saying Biotechnology to people around us, we just say biology or life science because that's what normal people have a clear idea about yet there is quite a difference between them as well.

Once again this is wrong by definition. Biotechnology is, by definition, based on biology. Accounting is not based on economics. Accounting existed long before economics came into being.

Originally Posted by Ramza

PS : I completely fail to understand how you cannot make any kind of money in this game from crafting with your apparently high lvl of economics education /shrug

Economics does not tell you how to make a profit. It simply tells you where profit will exist.

Of course, you need not look much farther than a few real life examples to realize this.
Bill Gates, for example, is a college dropout, while Donald Trump has filed bankruptcy 3 times with a degree in economics