TedTest

From the Ted Talk by Prateek Singh: What causes economic bubbles?

Unscramble the Blue Letters

How much would you pay for a bouquet of tulips? A few dollars? A hundred dlolars? How about a million dollars? Probably not. Well, how much would you pay for this house, or partial ownership of a website that sells pet supileps? At different points in time, tulips, real estate and stock in pets.com have all sold for much more than they were worth. In each itnnasce, the price rose and rose and then abruptly plummeted. Economists call this a bublbe. So what is exactly is going on with a bubble? Well, let's start with the tulips to get a better idea. The 17th century saw the Netherlands enter the Dutch golden age. By the 1630s, Amsterdam was an important port and commercial center. Dutch siphs imported spices from Asia in huge quantities to earn pfrtios in eorupe. So Amsterdam was brimming with wealthy, skilled merchants and traders who displayed their prosperity by linivg in mansions seundourrd by flower gardens. And there was one flower in particularly high demand: the tulip. The tulip was brought to Europe on trading vessels that sailed from the East. Because of this, it was cieernsdod an exotic flower that was also difficult to grow, since it could take years for a single tulip to bloom. During the 1630s, an outbreak of tiulp breaking viurs made select flowers even more bfatiuuel by lining petals with multicolor, flame-like streaks. A tulip like this was scarcer than a normal tulip and as a result, prices for these fowlres started to rise, and with them, the tulip's popularity. It wasn't long before the tulip became a nationwide sensation and tulip mania was born. A mania occurs when there is an upward movement of price combined with a wlesnlignis to pay large sums of money for something vuaeld much lower in intrinsic value. A recent example of this is the dot-com mania of the 1990s. Stocks in new, exciting websites were like the tulips of the 17th century. Everybody wanted some. The more people who wanted the tulip, the heighr the price could go. At one point, a single tulip bulb sold for more than ten times the annual salary of a skilled catmsrafn. In the stock market, the price of stock is beasd on the supply and demand of investors. Stock prices tend to rise when it seems like a canopmy will earn more in the future. Investors might then buy more of the stock, raising the prices even further due to an increased demand. This can result in a feedback loop where investors get caught up in the hype and ultimately drive prices far above intrinsic value, creating a bubble. All that is nedeed for a mania to end and for a bubble to bsurt is the collective realization that the picre of the stock, or a tulip, far exceeds its worth. That's what happened with both maains. Suddenly the demand ended. Prices were pushed to staggering lows, and pop! The bubbles burst, and the market crashed. Today, scholars work long and hard trying to pcidret what causes a bubble and how to aovid them. Tulip mania is an effective ituoailstrln of the underlying principles at work in a bubble and can help us understand more recent examples like the real estate bubble of the late 2000s. The economy will continue to go through phases of booms and busts. So while we wait for the next miana to start, and the next bubble to burst, teart yourself to a bouquet of tpluis and enojy the fact that you didn't have to pay an arm and a leg for them.

Open Cloze

How much would you pay for a bouquet of tulips? A few dollars? A hundred _______? How about a million dollars? Probably not. Well, how much would you pay for this house, or partial ownership of a website that sells pet ________? At different points in time, tulips, real estate and stock in pets.com have all sold for much more than they were worth. In each ________, the price rose and rose and then abruptly plummeted. Economists call this a ______. So what is exactly is going on with a bubble? Well, let's start with the tulips to get a better idea. The 17th century saw the Netherlands enter the Dutch golden age. By the 1630s, Amsterdam was an important port and commercial center. Dutch _____ imported spices from Asia in huge quantities to earn _______ in ______. So Amsterdam was brimming with wealthy, skilled merchants and traders who displayed their prosperity by ______ in mansions __________ by flower gardens. And there was one flower in particularly high demand: the tulip. The tulip was brought to Europe on trading vessels that sailed from the East. Because of this, it was __________ an exotic flower that was also difficult to grow, since it could take years for a single tulip to bloom. During the 1630s, an outbreak of _____ breaking _____ made select flowers even more _________ by lining petals with multicolor, flame-like streaks. A tulip like this was scarcer than a normal tulip and as a result, prices for these _______ started to rise, and with them, the tulip's popularity. It wasn't long before the tulip became a nationwide sensation and tulip mania was born. A mania occurs when there is an upward movement of price combined with a ___________ to pay large sums of money for something ______ much lower in intrinsic value. A recent example of this is the dot-com mania of the 1990s. Stocks in new, exciting websites were like the tulips of the 17th century. Everybody wanted some. The more people who wanted the tulip, the ______ the price could go. At one point, a single tulip bulb sold for more than ten times the annual salary of a skilled _________. In the stock market, the price of stock is _____ on the supply and demand of investors. Stock prices tend to rise when it seems like a _______ will earn more in the future. Investors might then buy more of the stock, raising the prices even further due to an increased demand. This can result in a feedback loop where investors get caught up in the hype and ultimately drive prices far above intrinsic value, creating a bubble. All that is ______ for a mania to end and for a bubble to _____ is the collective realization that the _____ of the stock, or a tulip, far exceeds its worth. That's what happened with both ______. Suddenly the demand ended. Prices were pushed to staggering lows, and pop! The bubbles burst, and the market crashed. Today, scholars work long and hard trying to _______ what causes a bubble and how to _____ them. Tulip mania is an effective ____________ of the underlying principles at work in a bubble and can help us understand more recent examples like the real estate bubble of the late 2000s. The economy will continue to go through phases of booms and busts. So while we wait for the next _____ to start, and the next bubble to burst, _____ yourself to a bouquet of ______ and _____ the fact that you didn't have to pay an arm and a leg for them.

Solution

tulips
burst
manias
dollars
needed
price
virus
higher
enjoy
mania
willingness
living
avoid
considered
supplies
bubble
company
treat
valued
tulip
surrounded
illustration
profits
ships
craftsman
beautiful
instance
based
europe
flowers
predict

Original Text

How much would you pay for a bouquet of tulips? A few dollars? A hundred dollars? How about a million dollars? Probably not. Well, how much would you pay for this house, or partial ownership of a website that sells pet supplies? At different points in time, tulips, real estate and stock in pets.com have all sold for much more than they were worth. In each instance, the price rose and rose and then abruptly plummeted. Economists call this a bubble. So what is exactly is going on with a bubble? Well, let's start with the tulips to get a better idea. The 17th century saw the Netherlands enter the Dutch golden age. By the 1630s, Amsterdam was an important port and commercial center. Dutch ships imported spices from Asia in huge quantities to earn profits in Europe. So Amsterdam was brimming with wealthy, skilled merchants and traders who displayed their prosperity by living in mansions surrounded by flower gardens. And there was one flower in particularly high demand: the tulip. The tulip was brought to Europe on trading vessels that sailed from the East. Because of this, it was considered an exotic flower that was also difficult to grow, since it could take years for a single tulip to bloom. During the 1630s, an outbreak of tulip breaking virus made select flowers even more beautiful by lining petals with multicolor, flame-like streaks. A tulip like this was scarcer than a normal tulip and as a result, prices for these flowers started to rise, and with them, the tulip's popularity. It wasn't long before the tulip became a nationwide sensation and tulip mania was born. A mania occurs when there is an upward movement of price combined with a willingness to pay large sums of money for something valued much lower in intrinsic value. A recent example of this is the dot-com mania of the 1990s. Stocks in new, exciting websites were like the tulips of the 17th century. Everybody wanted some. The more people who wanted the tulip, the higher the price could go. At one point, a single tulip bulb sold for more than ten times the annual salary of a skilled craftsman. In the stock market, the price of stock is based on the supply and demand of investors. Stock prices tend to rise when it seems like a company will earn more in the future. Investors might then buy more of the stock, raising the prices even further due to an increased demand. This can result in a feedback loop where investors get caught up in the hype and ultimately drive prices far above intrinsic value, creating a bubble. All that is needed for a mania to end and for a bubble to burst is the collective realization that the price of the stock, or a tulip, far exceeds its worth. That's what happened with both manias. Suddenly the demand ended. Prices were pushed to staggering lows, and pop! The bubbles burst, and the market crashed. Today, scholars work long and hard trying to predict what causes a bubble and how to avoid them. Tulip mania is an effective illustration of the underlying principles at work in a bubble and can help us understand more recent examples like the real estate bubble of the late 2000s. The economy will continue to go through phases of booms and busts. So while we wait for the next mania to start, and the next bubble to burst, treat yourself to a bouquet of tulips and enjoy the fact that you didn't have to pay an arm and a leg for them.

Frequently Occurring Word Combinations

ngrams of length 2

collocation	frequency
real estate	2
single tulip	2
tulip mania	2

Important Words

abruptly
age
amsterdam
annual
arm
asia
avoid
based
beautiful
bloom
booms
born
bouquet
breaking
brimming
brought
bubble
bubbles
bulb
burst
busts
buy
call
caught
center
century
collective
combined
commercial
company
considered
continue
craftsman
crashed
creating
demand
difficult
displayed
dollars
drive
due
dutch
earn
east
economists
economy
effective
ended
enjoy
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estate
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exciting
exotic
fact
feedback
flower
flowers
future
gardens
golden
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happened
hard
high
higher
house
huge
hype
idea
illustration
important
imported
increased
instance
intrinsic
investors
large
late
leg
lining
living
long
loop
lows
mania
manias
mansions
market
merchants
million
money
movement
multicolor
nationwide
needed
netherlands
normal
occurs
outbreak
ownership
partial
pay
people
pet
petals
pets
phases
plummeted
point
points
popularity
port
predict
price
prices
principles
profits
prosperity
pushed
quantities
raising
real
realization
result
rise
rose
sailed
salary
scarcer
scholars
select
sells
sensation
ships
single
skilled
sold
spices
staggering
start
started
stock
stocks
streaks
suddenly
sums
supplies
supply
surrounded
ten
tend
time
times
today
traders
trading
treat
tulip
tulips
ultimately
underlying
understand
upward
valued
vessels
virus
wait
wanted
wealthy
website
websites
willingness
work
worth
years