How Tulips Affect Economies - Why Economics History is Important

We have recently seen a sudden change of excess demand excess supply is devastating for the economy. The effects of overpaid for raw materials has led to the recent economic woes, the tech bubble a few years back and the disastrous economic events of 1929. The bursting of economic bubbles goes back much further than we realize, as shown in the following events.

Tulip Economy
Prices skyrocketed because demand for a future product increased (demand is inelastic in economic 'speak'). The product was Tulips and momentum of the question was like a huge tidal wave grows exponentially. Contracts were concluded for future crops of various derivatives of beautiful tulip flowers and bulbs.
Tulips, it is known not fast growers, it takes more than seven years of flowering plants grow from bulbs or seeds but the rarest tulip, the multicolored variety, only grows from a bulb. The multicolored Tulip therefore became very popular, much more than it is red, yellow and other colored some namesakes.

Demand Goes Crazy

The rising prices were due to the classic supply and demand economics. Delivery was due to the extensive time required for the product to grow as the demand grew fixed as a result of fortunes are made. The fortunes were made mainly because of the speculative nature of future contracts. Tulips, the product, are seasonal and were only available for physical transfer of ownership for a few short months a year. As the demand was high, and rising, contracts can be sold for a higher price than the purchase price of the product itself. The contracts were ultimately a product of their own accord and were traded and priced in accordance with the booming demand.

Economic History repeated

As we have seen recently, when demand is influenced or scarce finances, the market collapses. This is exactly what happened in the Tulip market very quickly demand plummeted and the holders of the contracts for the Tulips were unable contracts which they had bought for much more than selling the product was worth. The economic effects were devastating and widespread.