An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania or a balloon) is "trade in high volumes at prices that are considerably at variance with intrinsic values". It could also be described as a trade in products or assets with inflated values.
While some economists deny that bubbles occur, the cause of bubbles remains a challenge to those who are convinced that asset prices often deviate strongly from intrinsic values.
While many explanations have been suggested, it has been recently shown that bubbles appear even without uncertainty, speculation, or bounded rationality. It has also been suggested that bubbles might ultimately be caused by processes of price coordination or emerging social norms.
Because it is often difficult to observe intrinsic values in real-life markets, bubbles are often conclusively identified only in retrospect, when a sudden drop in prices appears. Such a drop is known as a crash or a bubble burst. Both the boom and the burst phases of the bubble are examples of a positive feedback mechanism, in contrast to the negative feedback mechanism that determines the equilibrium price under normal market circumstances. Prices in an economic bubble can fluctuate erratically, and become impossible to predict from supply and demand alone.
Read more about Economic Bubble: Origin of Term, Impact, Possible Causes, Examples of Bubbles and Purported Bubbles, Examples of Aftermaths of Bubbles
Famous quotes containing the words economic and/or bubble:
“What exacerbates the strain in the working class is the absence of money to pay for services they need, economic insecurity, poor daycare, and lack of dignity and boredom in each partner’s job. What exacerbates it in upper-middle class is the instability of paid help and the enormous demands of the career system in which both partners become willing believers. But the tug between traditional and egalitarian models of marriage runs from top to bottom of the class ladder.”
—Arlie Hochschild (20th century)
“While this America settles in the mould of its vulgarity, heavily
thickening to empire,
And protest, only a bubble in the molten mass, pops and sighs out,
and the mass hardens,”
—Robinson Jeffers (1887–1962)