The price of a resource is defined by several variables, depending on the active economic policies.
In gift economy, resources have no prices. None of the price variables have any effect.
With fair exchange, resources now have a value. The Base price and the Minimum price variables take effect.
With currency, all the price variables take effect, adding Market study, Supply/demand, and Price arbitrage variables to the previous ones and making prices much more dynamic.
The price variables
The final price of a resource in a territory is the sum of each one of these price variables.
Base price is the default price of a resource based on the raw time required to produce the resource (workforce required per produced unit). It is a constant defined by the resource itself.
As its name indicates, price cannot go below the minimum price. This prevails over all other price variables: if other variables result in a price below the minimum price, the minimum price variable will compensate for it to ensure the final price remains equal or superior to it. Minimum price is based on 2 things: the production cost (or importation cost if relevant), and a profit margin ensuring minimum profits for the producers/traders of the resource. By default profit margin is +1 over the production cost, but it can reach +2 if the resource is distributed through merchants, to compensate for the merchant's share.
Market study is a variable indicating the ideal price for the resource to maximize profits, based on the current purchasing power of the potential clients for the resource.
It can sometimes be more profitable to sell less resources at a higher price to few people, than at a lower price to more people, therefore market study can lead in price inflation reducing the population access to the resource but increasing profits, even though the resource is produced in sufficient amounts to supply everyone in theory. Purchasing power of each class is their current level of wealth.
For example, it can be more profitable to sell few apples at 10% of the population (the richest classes) for 15 coins each, than to sell 10 times more apples at 100% of the population but for 1 coin each: this is what market study indicates, and its a process done by the merchants of the city.
Supply and demand represent the competition effect between merchants, or clients, for the resource.
If supply is much higher than demand, merchants will compete to sell their stock and drive the price down from the ideal market study result.
If demand is higher, then the opposite happens and price can rise above the ideal market study price.
Price arbitrage represents the effect of neighboring territories over the local price. If nearby territories have big price differences with it, price arbitrage happens as people will take advantage of this difference. This will naturally lead to prices balancing with one another, and it is represented by the price arbitrage variable.
Price arbitrage is based on a "world area price", calculated for each resource of the city by looking at the price of that same resource in all the nearby territories.
Not all territories are taken into account: only territories belonging to the same player, or foreign ones the player has a trading agreement with ( therefore inclues all members of the same naion ).
Looking at all these territories, it calculates a price average where the price in each territory is weighted by the amount being consummed/bought in it and the distance of that nearby territory with the city. The arbitrage influence of nearby territories decrease with distance gradually, by 10% per world tile meaning a city's price will be affected by neraby territories up to 10 tiles, with most of the influence being within 5 tiles of distance.
The price arbitrage effect is then determined by the difference between the local price (before the effect of arbitrage) and the world area price. A lower world price as a bigger effect than a higher one. This difference results in a world price influence percentage.
For example if the world price is lower than the local price and results in a world price influence of 60%, this means the final price becomes a mix between the 2 with 40% influence for the local price and 60% for the calculated world area price. If the local price was 100 and the world price 40, with an influence of 60% the final price will be 64. That's -36 from the local price of 100, and therefore the value of price arbitrage variable will be displayed as -36, bringing the final price calculation sum from 100 to 64.