What Causes Economic Bubbles? – Prateek Singh
Lesson summary:
The lesson is about bubbles in the economy, specifically referring to the example of tulip mania in the 17th century Netherlands and the dot-com mania of the 1990s. The lesson explains that a bubble is created when there is an upward movement of price combined with a willingness to pay large sums of money for something that is valued much lower in intrinsic value. Tulip mania was an example of this, where tulip bulbs sold for more than ten times the annual salary of a skilled craftsman. The dot-com mania of the 1990s was another example, where stocks in new, exciting websites were in high demand and prices rose far above intrinsic value. The lesson explains that the end of a mania and the bursting of a bubble happens when the demand ends and the collective realization that the price of something far exceeds its worth.