Research the topic of tulip mania that we discussed, Give examples of the perceived value of tulip bulbs at the height of the mania and then later, after the bubble burst. Why do you think this mania occurred?
What Will You Do If the Bubble Bursts?
A bubble seems like a harmless thing, but in the business world a bubble can be a prelude to economic catastrophe. A bubble occurs when investors continue to buy a commodity that is rising in price, believing that the price will continue to rise and so enable them to make a profit later. As the bubble grows, investors become willing to pay much more for a commodity than it is actually worth. In effect a bubble is an example of inductive reasoning run amok.
A famous example of an economic bubble occurred in the 17th century in Holland when investors began to invest irrationally in rare tulip bulbs. For more on this intriguing story, see the book Tulipomania by Mike Dash. Tulip mania, as it was called, drove up the price of exotic tulip bulbs to dizzying heights—for example, an offer was made on a rare bulb called Semper Augustus at an amount equal to the annual income of a wealthy merchant. As people traded their real fortunes for imaginary ones, the frenzy grew until investors began to refuse to pay the inflated prices for the bulbs. At this point panic ensued as investors frantically tried to unload what they now recognized as bad investments. Within weeks, the mania was over.
In the early part of this century, heavy investment in Internet companies caused a “dot-com” bubble, which eventually burst, costing investors billions of dollars. More recently, the global financial crisis of 2007–2010 is believed to be the result of an unsustainable housing bubble.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.