A bubble in the price of a striped bulb: up and up, then back down.
The big ideaA bubble is a price far above worth, kept rising by hope, until it pops.
How it works
In Bloomvale, a made-up village, a bulb was worth about two coins as a flower. But people began buying bulbs to sell, not to plant.
The price climbed: two coins, then four, then eight, then twelve, because each buyer hoped someone would pay even more.
Then buyers stopped coming and everyone wanted to sell, so the price tumbled right back to a flower's price. That is a bubble bursting.
A tulip craze like this really happened in Europe in the 1630s. A good question: what is it worth to use, with no buyer waiting?
Price and worth are not the same thing.How a bubble grows and pops.
Example 1: Price against worth
As a flower, the bulb is worth about 2 coins.
At the peak the price is 12 coins.
The gap is 12 − 2 = 10 coins: the price is far above its worth.
Example 2: Leo's easy coin
Leo pays 2 coins for a bulb.
A neighbor offers 3 coins, so he sells.
He makes 3 − 2 = 1 coin without growing a flower.
Example 3: Why the bubble pops
A seller waits and no buyer comes.
A few sell quickly and the price dips.
Soon everyone wants to sell and nobody wants to buy, so the price tumbles back to 2.
Example 4: A good question to ask
When a price shoots up, ask: what is it worth to use, with no buyer waiting?
Nobody can always tell when a bubble is growing, and that is okay.
Asking the question helps.
Words to know
price
What people pay.
worth
What something is good for.
bubble
A price far above worth, kept rising by people expecting more.
craze
A sudden rush that many people join.
Watch out
The tulips still bloomed when the price fell. Only the price changed.
Price and worth can be far apart, as they were in Bloomvale.
People say some bulbs cost a house, but historians think the tales grew taller than the facts.
Bubbles are not only about flowers. They have come since over houses and new companies.
Try it
A bulb is worth 2 coins and costs 12. How far above its worth is the price?
Leo sold a bulb for 3 coins and made 1 coin. What had he paid?
What makes a bubble pop?
Did the tulips stop blooming when the price fell?
Answers: 1. 10 coins · 2. 2 coins · 3. Buyers stop coming and everyone wants to sell · 4. No
Try at homeWith a grown-up, talk about a time when the price of something shot up very fast. Did it stay up? What happened after?
For grown-upsTalk about a time when the price of something shot up very fast: did it stay up, and what happened after? This is history and an idea, not advice about buying anything.
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