What is a Micro Transaction?

To save further argument, any time I refer to a “micro transaction” what I mean is exactly and only any system designed to allow micro payments with no per-transaction fee. A micro payment is a purchase that involves less real world currency than about one hour's worth of an average salary for the purchaser's country.

Update: Better terminology is “micro payment” for the tiny monetary transactions, and “virtual goods” for the things you buy through an in-game store. I had previously equated “micro transaction” with “micro payment” exclusively.

Currency Cycle - Balancing the Economy Pt 3

In economics, there is the concept of Monetary Velocity. This concept is basically a measure of how many times a particular unit of currency is used in an economy, and can be illustrated by this story:

Imagine a small country town. There is a pub, a hotel, a butcher, a baker, a whitegoods store, the businesses currently owe each other various amounts for various goods and services. A visitor comes to town and rents a room from the hotel for a couple of nights, for $100. The hotelier uses that money to pay her debt to the baker, who pays his debt to the butcher, who pays her debt to the whitegoods store, and so on down the line. That $100 has effectively paid off $500 worth of debts: this cycle of payments can keep going as long as the person the money is being transferred to still has outstanding debts to pay greater than $100.