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The higher the price, the more your diplomacy increases; and I read here that because of that breeding and selling horses will make it go up relatively fast. I also think every quest you do will increase it a bit (but not 100% sure on that one).
The Potion of Possibilities is a potion crafted in the Herbalist's Hut II. It can be unlocked once the Herbalist Hut II is unlocked, and is bought for 550 coins. The Potion of Possibilities is used to reset the player's skill points. It also sets the player's alcohol level to 100%, and can instantly give the achievement "I.. Am Not.. Drunk".
The vendor price of a single item plays isn't really important. When you trade, it's the total amount of the trade that counts. It doesn't matter whether the trade income was achievend by the sale of a single item or multiple items.
Example:
You go to a trader and sell him
a) a single item for 1000 coins
b) 100 items for 10 coins each
c) 10000 items for 0.1 coins each.
In all three examples you get about 10 diplomacy points in addition to the coins.
Rough guideline here: by trading 100 coins worth of items you gain 1 diplomacy point.
It doesn't matter whether a trade is concluded in a single action or spread over several days or several traders - the total sum of the trades is always decisive in the end.
Therefore, it is of course very convenient to get a comparatively large number of diplomacy points by selling a horse in one go. Thing is - I don't have an adult horse to sell every day. On the other hand, I can obtain 1000 flax or wheat seeds more easily and sell them in larger quantities than, for example, horses, and in the end I even tend to get my diplomacy points faster that way.
Pro tipp: when you use that potion, don't talk to your wife (in game wife, obviously) until you're sober again.
She doesn't like when her husband is dead drunk...
LOL! Pro-Pro Tip: My wife gets drunk, steals older men's canes, wants to start a cult, and tells weird cabbage jokes. :D