# How do you calculate the price of a good or service adjusted for scarcity?

For example, Widget A is worth \$100 when there are 50 of them available in the market, but the price goes up to$110 when there are only 40 of them left.

Widget B is worth \$100 when there are 50 available, but the price goes down to$75 when 110 are available.

When there are only one of each Widget A and Widget B, which one will have a higher price? Or, which of the widget has the higher intrinsic value?

I don't know if I'm actually making sense or not. What I'm trying to do is come up with a formula for scarcity-adjusted value, or essentially a measure of value abstracted from supply.

• Why is the price going up if you are abstracting away from supply? If a buyer is only interested in buying one of an item, it doesn’t matter to them how many more are available. May 3 '20 at 22:50
• Ok, confession time. This is for a video game which involves trading. I am trying to determine the average price, independent of supply, for various items in particular cities, with an eye to creating trade routes that will be net profitable. So, if City A values Grain, for example, more highly than City B, it makes sense for me to buy Grain in City B and sell it in City A. But supply is an X-factor here -- I want to isolate it. If City B only values Grain more than City A because of relative scarcity, I could end up getting a false impression of likely profitability.
– Dave
May 3 '20 at 23:04
• One of the key achievements of economics is to explain why the concept of "intrinsic value" does not exist and is not meaningful. (But unfortunately, this isn't often clearly explained in Econ 101 classes.)
– user18
May 4 '20 at 3:22
• @Dave I’ve played around with making my own video games. If you wanted to use economic theory, you should look up “agent-based models.” Alternatively, stock-flow consistent ( SFC) models are somewhat tractable. Otherwise, you’re going to have to largely wing it, and come up with heuristics that result in desired game balance. May 4 '20 at 12:17
• If you're not familiar with it, you might try gamedev.stackexchange.com gamedev.stackexchange.com/questions/tagged/economy May 5 '20 at 13:24

## 1 Answer

There is no such thing as "intrinsic value", at least not in modern microeconomics, and your question cannot be answered.

Let's for simplicity imagine a market where all consumers have unit demand. In your example, then, there are 50 consumers who have a willingness to pay (WTP) for a unit of A larger than \$100, but only 40 of those have a WTP larger than \$110. Similarly, in the market for B, 110 consumers have a WTP for a unit of B larger than \$75, but only 50 of those have a WTP larger than \$100.

What you are asking for is the market price of A and of B when only a single unit is offered. But that's just the maximal WTP among all consumers in the respective market. (Strictly speaking, any price between the maximal WTP and the second highest WTP can serve as the market price here.) This number is underdetermined in your example, so you cannot answer the question which of the two single widgets will achieve the higher price.

Another way to put it: If you are given two points of a demand curve, then that's not enough to tell where the demand curve interesects the vertical axis. (Unless, that is, if you additionally know e.g. that the demand curve is linear. But that's a very special case of course.)

• Ok, confession time. This is for a video game which involves trading. I am trying to determine the average price, independent of supply, for various items in particular cities, with an eye to creating trade routes that will be net profitable. So, if City A values Grain, for example, more highly than City B, it makes sense for me to buy Grain in City B and sell it in City A. But supply is an X-factor here -- I want to isolate it. If City B only values Grain more than City A because of relative scarcity, I could end up getting a false impression of likely profitability.
– Dave
May 3 '20 at 23:08
• But then why not just assume that city A's demand curve is above city B's demand curve? May 3 '20 at 23:12
• I won't know without visiting what the supply situation is in either city. I want to abstract supply because it's a variable that I won't be able to individually check on each time a caravan departs. I'm trying to identify a trend -- two cities where X product in one can be exchanged for y product in the other consistently at a net profit.
– Dave
May 4 '20 at 0:09