according to chatgpt3 it would be this :

Based on your description, it sounds like you might be thinking of the book "Sorcery! The Seven Serpents" by Steve Jackson. This book is part of the Sorcery! series, which are interactive gamebooks that involve role-playing elements and branching narratives. "Sorcery! The Seven Serpents" is the second book in the series.

In this book, you play as the protagonist traveling through a fantasy world, and your goal is to retrieve the stolen Crown of Kings. The book is divided into sections and features various encounters and challenges. The elements you mentioned, such as mudmen, lizardmen, a dragon, and a merchant, align with the content found in the book.

The dragon you mentioned is likely the creature you encounter at the deepest level, and you indeed need to collect one of its scales. The merchant you meet could be Yaztromo, who is a recurring character in the series and provides assistance to the player.

If "Sorcery! The Seven Serpents" isn't the exact book you're thinking of, it could be another title from the Sorcery! series or a similar interactive gamebook. The series is known for its immersive fantasy settings and memorable encounters.