Ted

How much would you pay for a pouquet of tulips

A few dollars $100 how about $1 million

Probably not?

well how much will you pay for this house? Or??partial ownership for a website that sells pet supplies.

At different points in time, tulips real estate in stock In pet.com that’s all sold for much more than they were worth

In each instance the price rose and rose and then Abruptly plummeted ,economist call this a bubble so what is exactly is going on with the bubble well let’s start with the tulips to get a better idea.

The 17th century saw the Netherland enter the Dutch Golden age, by the 1630s Amsterdam was an important pot and a commercial Dutch ships imported spices from Asia in huge quantities to earn profits in Europe.

So Amsterdam was brimming with wealthy skilled merchants and traders , call displayed their prosperity by living in missions?

Surrounded by flower gardens and there was one flower in particularly high demand

The tulips.

?the tulips was brought to Europe on trailing vessels that sailed from the east because of this it was considered an erotic flower, it was also difficult to grow sings it could take years for a single tulip to bloom.

During the 1630s an outbreak of tulip breaking virus Made select flower even more beautiful??lining petals with multi color flame like streaks Add to it like this was scarcer than a normal tulip and??as a result price for this flowers started to rise and with the tulips popularity , it wasn’t long before the tulips become a national wide sensation .

And tulip mania was born a mania occurs when there is an upward movement of price

Combined with a willingness to pay large sums of money for something valued much lower in intrinsic value.

Recent example of this is the.com mania of the 1990s

Stocks in new exciting websites were like the tulips of the 17 century everybody wanted some.

The more people Who wanted the tulip the higher the price could go . At one point a single tulip bulb sold for more than 10 times the annual salary of a skilled craftsman.

In the??stocks market the price of stock is based on the supply and demand of investors stock prices tend to rise , when it seems like a company will earn more in the future, investors might then buy more of the stock?，raising the price even further due to an increased demand, This can result in a feedback loop where investors get caught up in the hype and ultimately Drive prices far above intrinsic value creating a bubble all that is needed for mania to end and for a bubble to burst is the collective realization that the price of the stock or a tulip far exceeds its worth that’s what happened with both manias suddenly the demand ended prices were pushed to staggering laws and pop the bubble burst and the market crashed.

Today scholars work long and hard trying to predict what causes a bubble, and how to avoid them,tulip mania is effective illustration of the underlying principal that works in a bubble and can help us understand more recent examples?

Like the real estate bubble of the late 2000s

The economy will continue go to faces of booms and bust（The free market economy environment）