You've probably played this game before — the hero goes out into the wilderness, slaughters hordes of beasts and bandits, then returns to the town and promptly sells all his loot to the nearest shopkeeper. This is fun for a game, but it's far from realistic. A shopkeeper isn't going to want to buy 50 leather helmets, though the local militia might be interested if they're seriously under-equipped. So what would a realistic economy look like?
In the scenario that I'm considering, there is a town (around 5K people, perhaps?) with medieval-level technology. It is well known that magic exists, but there are not any people capable of harnessing it. Monsters exist, from the not-so-dangerous to the ridiculously lethal.
Magic was introduced into the world a century or two ago by unknown means. A lot of people were killed by the monsters, but eventually a safe area was found. For some reason this one particular area repels monsters, with the more dangerous a monster is the more it is repelled. That's where the town is built.
The town gets by, but it's no cakewalk. The town was built as compact as possible, so monster attacks don't happen in town. Most of the land around the town is farmland, but the safe area doesn't completely cover them — farmers have to watch out for low-level monster attacks. There are watchtowers (elevated wooden platforms with a simple roof and a ladder) at strategic points in the fields that allow the town guard to help watch and assist in fighting off any monster attacks. While skilled, the members of the town guard are still only normal humans. The town can't expand as there's no way the guard could continually fend off the stronger monsters that live in the surrounding area.
There is no contact with other towns. Traveling is far too dangerous to make it to any other towns without becoming monster chow.
Enter the hero.
A man is spotted stumbling out of the wilderness and taken by the guard into town. He doesn't remember how he got there, but they're not going to throw him to the monsters without cause.
He starts out weak and unskilled, but starts getting stronger and stronger. He also develops the ability to use magic. It doesn't take long before it's clear he's "the chosen one"™ or something — he's actually capable of surviving long enough in the wilderness to do some legitimate exploration.
So now the hero can go out exploring and bring home nice shiny loot. However, I doubt he'd be able to grab whatever random objects he finds and sell them to any shopkeeper he wants — supply and demand is probably still a real thing. I'm planning that he will be able to find things that are actually useful, such as materials for producing better equipment (for himself and the townsfolk) and one-time-use spellbooks that will allow other people to use magic (though not on the same level as the hero).
Starting out with a medieval economy where almost everyone is just getting by (so disposable income is pretty much nonexistent) how would the town's economy evolve to handle a guy who is eager to dump his entire load of (moderately useful) loot?