How much would you pay for a bouquet of tulips? A few dollars? A hundred dollars?
How about a million dollars? Probably not.
Well, how much would you pay for this house, or partial ownership of a website that sells pet supplies?
At different points in time, tulips, real estate and stock in pets. com have all sold for much more than they were worth. In each instance, the price rose and rose and then abruptly plummeted.
Economists call this a bubble. So, what exactly is going on with a bubble?
Well, let's start with the tulips to get a better idea. The 17th century saw the Netherlands enter the Dutch golden age.
By the 1630s, Amsterdam was an important port and commercial center. Dutch ships imported spices from Asia in huge quantities to earn profits in Europe. So, Amsterdam was brimming with wealthy, skilled merchants and traders who displayed their prosperity by living in mansions surrounded by flower gardens. And there was one flower in particularly high demand: the tulip.
The tulip was brought to Europe on trading vessels that sailed from the East. Because of this, it was considered an exotic flower that was also difficult to grow, since it could take years for a single tulip to bloom. During the 1630s, an outbreak of tulip breaking virus made selected flowers even more beautiful by lining petals with multicolor, flame-like streaks.From:examw.com/catti
A tulip like this was scarcer than a normal tulip and as a result, prices for these flowers started to rise, and with them, the tulip's popularity. It wasn't long before the tulip became a nationwide 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.