Bubble is a phenomenon where the price of a certain asset rises extremely high because of collective delusion in the market. People tend to pay more for certain assets than justified thus, creating more demand. The buyers invest in assets under the presumption that they will be able to sell it for a higher price to the next buyer but eventually the market realises the assets are not worth the high price and that causes the bubble to burst.
The first grand example of a bubble can be traced back to 1630s when people were ready to pay more than a million dollar to acquire one tulip bulb. People were trading acres of land for tulips. It was a trend among the wealthy merchants to surround their mansions with tulip gardens. The demand for tulips arose so much that buyers had started signing future contracts for tulips before the season even arrived assuming that the demand will keep increasing. However, the investors realised the real value of a tulip and today tulips cost less than Rs. 20/-.
This was the phenomenon in the case of real estate in the late 2000s and dot com internet website companies in the 1990s that had caused the stock markets to crash.
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