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Will the demand for low level items remain?
Yes for crafting materials. No for rep items and other items of the sort. Get a hold of some Dark Iron Residue and try to sell it, its near impossible. Although achievements creates a small demand for low level reputations, its not much.
Crafting materials will always be in demand. So long as people continue to level up and restart crafting professions, the demand will be there.
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As the population of vanilla WoW thins out more and more, aided by the DK's bypassing it, will there be a demand?
Same question, just leading with the DK start @ 55. DKs will level their professions as well. The crime would have been if Blizzard gave all DKs the choice of two lvl 300 crafting/gathering professions, but they didn't. While they aren't as invigorating to the low level materials market as starting at level 1, they are still buying/selling low level materials to level up professions.
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The other part of the equation is supply. Will someone be willing to provide supply to a probably weak demand?
New players are always coming into the game, and people are always leveling new alts. Supply will remain until you can do a /who barrens and find nobody there, IMO. Sure, the population in vanilla WoW zones has dropped considerably, but its to be expected.
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Also, the cost of generating the supply may make it unattractive. That is, the profit margin per time spent may be too low for people (even farmers) to bother. I.e., why mess with vanilla WoW items when they can use a flying mount in Outland or Northrend and make more money with less time input?
Its absolutely ludicrous to think that lvl 80 players are going to go back to their old mithril routes and start farming that for gold on any kind of regular basis. The only time lvl 80 characters will go back to farm low level items is when they wish to supply their own demand(ex: DK leveling up BS).
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Still, I think demand is really the key issue. At this point, it seems more and more likely the vanilla WoW population will continue shrinking and along with it, the demand for vanilla items and mats.
Go check out thorium and mithril ore prices on your server and tell me there isn't a demand for it. When demand = 0, so does price. These items are higher in price than ever before. Thorium is going for anywhere between 50 and 100 gold per stack on my server.
The items that demand is extremely low are items that are uneeded for powerleveling professions. Low level shards for Enchanting are a good example. Radiants are still in need because fiery is a great weapon enchant while leveling alts. Glowing and under(forget the name)? They sell for almost nothing on my server, 3-5G for a full stack most of the time, while a stack of dust is worth the same or more.
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The easy ones like herbs, metals, skins, etc. are not all what I am concerned with. Let me give an
example; there is a Horde quest in Ashenvale that requires a Deadly Blunderbuss to complete and which has a nice blue armor as a reward. The gun had disappeared from my server AT ANY PRICE until I decided to make an effort to supply them. At the price I charge I am not getting rich but I think its a worthwhile thing to do. But I do not think my attitude is all that common.
That weapon can be made by any engineer, and it is quite easy to change raw materials into the needed item. Therefore, demand can shift from the weapon itself to materials quite easily. Sure, you might never find any on the AH, but gather the materials, find a helpful engineer, and you're done.
By making the gun and supplying it at the AH, you're just creating an easier venue for people to obtain it. You're not creating a new market that makes it possible for players to obtain said item. You're just providing a service that saves time.
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Now don't get me wrong there are a few farmers left. But a) there are not enough of them and b) there are not enough customers either (imo).
What is "enough" for farmers or customers? Is it when rare items like truesilver or silver can't be found on the AH, or regular ores like mithril/thorium? So long as the market continues and items are bought/sold, there is enough of each.
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If you have studied economics, and I have, you would know that at the extremes supply and demand break down as a viable system*.
As have I. You're basing it on inelastic demand/supply, which is completely wrong. Prices in the WoW economy ARE somewhat elastic. Nobody is going to pay 150G per herb of low level items(per herb, not stack). There are boundaries of what people will pay, and demand is therefore elastic.
Really, the market is functioning as intended. New players aren't poorer now than before, they can be richer now because of higher prices.