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

Other goods which have produced bubbles include beanie babies and postage stamps.

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