Creating a realistic world involves understanding and applying various concepts, one of which is economics. Don't worry if you're not an economist! This guide will explain the basic principles of economics in an easy-to-understand manner to help make your fictional world more believable.
Scarcity is the fundamental concept of economics. It's the basic principle that there is less of a good freely available from nature than people would like.
In your country, resources could be anything from food and water, to strategic resources, to skilled labourers.
Scarcity leads to trade-offs: since there isn't enough of everything to satisfy everyone completely, choices must be made about how to use and distribute resources.
In a desert country, water might be a scarce resource. As a result, conflicts arise over control of oases and wells, or significant resources might be devoted to technology that can produce fresh water.
See also: map of resources on Eurth.
2. Supply and Demand
Supply and demand are key to understanding market dynamics. Demand refers to how much (quantity) of a product or service is desired by buyers. Supply represents how much the market can offer.
When demand exceeds supply, prices tend to rise. Conversely, when supply exceeds demand, prices tend to fall. The point at which supply and demand meet is the equilibrium price, and that is typically the "market price."
If your country has a unique medicinal herb that can heal any injury, but it's very rare (low supply), and many people want it (high demand), the price of this herb will be very high.
3. Money and Currency
Money is any commonly recognized item which can be used for transactions. A well-designed monetary system in your country can add depth and realism. The system should take into account things like: Who mints the money? What is it backed by? (gold, silver, faith in the government, etc.). How are counterfeits prevented?
Example: A kingdom might use gold coins as currency, minted by the royal treasury. The treasury stamps each coin with the king's face to prevent counterfeiting.
See also: list of currencies on Eurth.
4. Trade and Exchange
Trade is the voluntary exchange of goods and services. Trade can occur between individuals, regions, and different countries. Some places will have abundant resources that others lack, and vice versa, which is why trade becomes beneficial.
If coastal cities in your country have abundant seafood but lack timber, and mountain towns have abundant timber but lack seafood, they can trade to mutual benefit.
See also: Economic organisations on Eurth,
5. Government and Economics
The government plays a role in shaping the economy. It can set policies and regulations, levy taxes, and even control certain industries. The level of government intervention can vary from a laissez-faire approach (minimal intervention) to a command economy (complete control), with many options in between.
In a country ruled by an autocratic dictator, the regime might heavily control and regulate the use and distribution of scare goods.
See also: Index of economic freedoms on Eurth.
6. Inflation and Deflation
Inflation is when average prices are rising, while deflation is when average prices are falling. Moderate inflation is common and often seen as a sign of a healthy economy. However, hyperinflation (extremely high and typically accelerating inflation) can erode savings and destabilize societies.
If your country discovers new gold mines and floods the market with gold coins, this could lead to inflation as the increased money supply devalues the currency.
7. Unemployment and Labour Force
The unemployment rate measures the number of people who are willing and able to work but cannot find jobs. The labour force includes all people aged 16 and older who are either employed or actively looking for work.
In a country devastated by an enemy attack, many people might be unemployed while the country is rebuilt.
8. Gross Domestic Product
GDP is a measure of the total value of all goods and services produced by a country in a certain period. It's a way to measure the size and performance of a country's economy. It includes everything from the sandwich you bought for lunch to the cost of a brand-new building.
In a thriving country with bustling markets, mines full of precious metals, and fields overflowing with crops, the country's GDP would be quite high, signifying a productive, prosperous economy. If production slows due to a war or disease, the GDP would decrease.
See also: List of countries on Eurth by GDP.
9. GDP per capita
This is the GDP of a country divided by its population. It's an average, so it doesn't show the distribution of wealth within a country, but it gives a rough measure of the average economic output per person. In world-building, this can help give an idea of the average standard of living in different countries or continents.
If your country has a high GDP but also a very large population, the GDP per capita might be low, suggesting that while the kingdom as a whole is wealthy, individual citizens might not be. On the other hand, a small city-state with a modest total GDP but a tiny population might have a high GDP per capita, suggesting a high standard of living.
See also: List of countries on Eurth by GDP per capita.
Remember, economics is about making choices in the face of scarcity. It's about how people, societies, and organizations use resources to fulfil their needs and wants. How your world navigates these challenges will greatly contribute to its depth and realism. Happy world building!