Economic bubble
An economic bubble occurs when speculation in a good causes the price to increase, thus producing more speculation. The price of the good then reaches absurd levels and the bubble is usually followed by a sudden drop in prices, known as a crash.Economic bubbles are generally considered to be bad things because they cause misallocation of resources into non-productive uses. In addition, the crash which follows an economic bubble can destroy a large amount of wealth and cause continuing economic malaise as was the case of the Great Depression in the 1930s and Japan in the 1990s.
Examples of economic bubbles include:
- the stock market bubble
- South Sea Bubble
- Tulipomania
- Real estate is frequently a good example of economic bubbles:
- the Florida swampland real estate bubble
- Japananese real estate bubble boom
