There are hundreds of wizards running around contemporary D&D settings and society still manages to exist in this pre-Renaissance middle ages limbo. A low-level wizard is essentially an engineer, police officer, scholar, or a myriad other number of equivalent professions and when society doesn't react to that magic being used in a utilitarian way then that civilization is mediocre and illogically stagnating.
In 1987, I created my first wizard character. Up until that point I had always played fighters or barbarians, so it was a complete change and in my young mind I felt like I was giving up the brawny, muscular Conan-like character I had always played for something that more closely resembled myself, a stick-thin geeky egghead who kept his nose in books. In play I ended up constantly fearing my character would get killed and so I always kept the most offensive spells prepared. When the character was capable of casting fireball it became my go-to spell for any combat situation much to the frequently aflame dismay of my party members.
I remember the moment around the table where I was confronted with using material components for spells, something that had always been handwaved aside before. We had recently plundered a dungeon and returned to the city with a bag filled with magic items that we didn't know what they did yet. It was my job to cast the Identify spell on each of the items and determine their properties before we could properly divide the loot, and I remember every player had to pool their gold pieces in order to buy the material components for the Identify spells that needed to be cast. You see, every time you cast an Identify spell it consumes a pearl worth 100 gold pieces. I remember we needed eight of these pearls and so we needed 800 gold pieces, but the total take in gold pieces from the dungeon we had just journeyed back from was about half of that total.
It then occurred to me that the place where we would buy these pearls had more total wealth in his store in gemstones than the entire dungeon we had just plundered had in gold pieces. I made the suggestion "Why don't we just break in to the jeweler's and steal the diamonds we need?" and I distinctly remember it wasn't the DM who tried to dissuade us from this action, but the players themselves started describing no-win scenarios for trying to burgle a small town's storefront. These were players who had just killed dozens of lizardmen and drow in a protracted three-day battle through their lair. They were willing to risk their necks going into an underground lair filled with armored and spellcasting "monsters" but somehow breaking into a jewelry store at midnight became an impossibility. Eventually a lengthy and drawn out debate about alignment proceeded, which seemed to be routine in those days, but eventually out of exasperation the thief in our party took me aside to say "I'll try to break in later tonight when everybody else is asleep."
I don't really remember how all of that resolved, but I do remember that eventually I got the pearls to cast the Identify spells and we generally ended up with eight magic items that most of us couldn't use or didn't really want. I kept thinking about those eight 100 gp pearls and how they were now 'gone forever' and were worth more in my mind than what we got out of the entire adventure, dungeon treasure, magical items and all. I didn't know it at the time, but this was the seed of doubt that started my whole point of view that D&D worlds have no internal consistency.
Spare a light?
Consider the Continual Flame spell, the 3rd edition's answer to Continual Light. In previous editions there was no material component and with a permanent duration that meant any wizard capable of casting one 2nd-level spell per day could become the equivalent of the neighborhood electrician. In 3rd edition they decided to balance out this permanent spell by making it cost 50 gold pieces worth of ruby dust to cast. Rubies, I think, would become very VERY rare. So much so that the cost of the ruby dust would skyrocket, and thus how much dust do you actually use for the spell? 50 gp worth? The amount used by wizards would then become arbitrarily smaller and smaller, and the amount of ruby used up would become less and less, meaning that eventually there would be all of these permanently lit lights on the market and no rubies.
According to the way things are priced in the Player's Handbook, 50 gold pieces should not be that hard to come by. Most commoners won't be hiring their local wizard to make a permanent torch, but anybody with the money to do so would get one. This is the kind of impact I was talking about before. When magic exists in the world, people WILL use it and that usage should have both a cultural and social effect.
Anybody who was alive in the 1990s remembers pagers. How many people got pagers just because it was "the thing" people were doing? Half the kids in my high school had pagers, and regardless of how often they were actually used the price of pagers went down and pagers became more accessible, until cell phones started becoming "the thing" to have. And now it's iPhones and Androids and Blackberries. I own a cheap $15 pay as you go phone, but most of my friends have iPhones - I couldn't tell you with any certainty how many of them download apps or use it solely for calling people, but it's new tech and I have to think in a world where magic exists that if the magic is not pushing the tech to improve then the magic itself is the tech that is becoming more common.
Reality! Who needs it?
In the past I've had people address the idea that the tabletop game is not meant to be a completely realistic setting, and that nobody plays RPGs for realism. I agree. But if your suspension of disbelief isn't engaged then the absurdity of the setting will override whatever fun you think you're having. You'll look back on something and think "that didn't make any sense" and be bothered by it. Or maybe you won't. Maybe your apathy can trump your sense of logic. For myself, I expect reactions to follow action. If I kill the leader of a thieves' guild, I expect to see a power vacuum with subordinates fighting over the newly vacant position. That's not a quibble about the rules, that's an expectation of setting.
The problem with D&D is that it has always tied its rules in to the setting in order to create "balance" - and balance is an illusion that has never truly been there. Besides, I suspect if you ask most players what they want out of a tabletop RPG you're not going to hear either of the words "balance" or "realism" - but you will hear "a good GM" and good GMs take balance and realism into account when they run their games.
Sorry for the digression, now back to the local gem market!
With this ring, I thee ensorcel.
According to every edition of AD&D Identify is a 1st-level wizard spell, most wizards can start with it, and it costs a 100 gold piece pearl to cast it once. You are literally destroying a gem worth 100 gold pieces every time you cast the spell. The thought that occurred to me back then was "If I'm destroying pearls to cast this spell, what happens when the pearls run out?" And as a player I was always deeply resentful of the arbitrary price and limitations of the Identify spell. I once asked a GM if I could start researching a higher-level version of Identify that wouldn't require a 100 gp pearl as a component and he nearly turned white at the prospect that players might be able to just cast Identify without some sort of monetary limitation placed upon them. Again, game balance became an issue and so I dropped the idea but I never stopped thinking about it.
I remember when I could cast the Stoneskin spell I had a similar quandary. Stoneskin costs 250 gp worth of diamond to cast, and if you're a wizard you generally cast it every day. Without going into the numbers, a 250 gold piece diamond is about what you'd expect two very nice engagement ring diamonds to be like, small in size and a valuable carat.
But, and here's the really sticky flaw in all of this, diamonds are not actually that rare and in the real world their value has been artificially inflated due to a monopoly. De Beers is a company who in the past controlled over 90% of the diamond trade on Earth (presently you could say their control has dropped to about 60 to 75%), and their chairman Nicky Oppenheimer said it best: "diamonds are intrinsically worthless, except for the deep psychological need they fill." In the span of forty years diamonds had their prices inflated by almost 1000% and a $20 million industry became a $2 billion industry, and this was all before the massive inflation of the 1970s.
Thus, the D&D equivalent of a 250 gp diamond is really a contemporary view of what the worth of a diamond is. Are diamonds really that rare in D&D? Or is there a similar kind of inflated market price in D&D? This second question is how I explained away the massive cost of using diamonds and pearls for the Stoneskin and Identify spells, not only for the sake of my own internal logic as a player but when I started GMing I hand-waved the use of gemstones for spellcasting in a similar manner.
I would sometimes wonder about the gem trade within the setting of Dragonlance (the first campaign I played in) but then also began to consider it for Forgotten Realms (the first campaign world I GMed). Where were the diamonds coming from? And why hadn't they run out after thousands of years of wizards casting spells and adventuring and going to war over the eastern passage? And do the prices of diamonds go up as more and more wizards cast Stoneskin spells over the years? Is 250 gp worth of diamond related to weight or carat? And does the spell, over time, need less diamond as the inherent value of diamonds start to increase? And what of pearls, are there oyster farms where pearls are being produced solely for wizards' Identify spells? How does the market determine what costs 100 gp, and is the spell responsive to the value of the pearl or are the pearls only harvested and priced once they're the right size? Do these gems need to be cut and polished gemstones? Perhaps a shiny rock would suffice if, after laborious cutting and polishing, it would equal the required GP amount? Does it have to be finished as some means of keeping the economy going? If so, the gemcutter in the nearest city must keep fairly busy.
These are questions that I was asking as a teenager!
The whole economy is probably always going to be weird due to how some folks can just pop over to the Elemental Plane of Earth and snag a few of the literally infinite number of gemstones there (the Plane Shift spell doesn't require a material component). You might need literal tons of gems just to cast one spell, especially if the market has been flooded after a week of wizards plane shifting to gather diamonds. Which again makes me think "Where is the worth and value of the gemstone determined? Does the spell just know how much the diamonds and pearls are worth?"
There are so many more spells that require 1000 and 2500 gold piece gemstones. Some of which are for high-level spells that last for a few rounds (or 1 round per level of the caster). The money sink is just ridiculous, especially when I think back and remember that I never had gold pieces in the thousands.
I eventually graduated to just ignoring material components most of the time because they are arbitrary and in most cases ridiculous. The concept of material components is a throwback to the idea that wizards and witches would use mysterious ingredients in their incantations over the creation of potions and elixirs that I think somehow also got applied to spellcasting when the 1st edition rules were penned. Balance doesn't really enter into the equation because when the material components become extravagantly wealthy items that need to be procured then the GM suddenly has to make sure the PCs are getting the resources they need to use the spells they have, and if the GM never gives the PCs the ability or opportunity to acquire them than that's worse than railroading. Personally, unless it's a fairly dramatic spell (like something that will destroy a whole town or permanently enchant a sword), I just don't care about imposing those kinds of additional restrictions onto my players.