Self-study
P1
In economics, the term "speculative bubble" refers to a large upward move in an asset's price driven not by the asset's fundamentals—that is, by the earnings derivable from the asset—but rather by mere speculation that someone else will be willing to pay a higher price for it. ███ █████ ████████ ██ ████ ████████ ██ █ ████████ ███████ ██ ██████ ███ ██ █ ████ ██ ██████████ ████ ███ █████ ████ ████████ ██ █████ ███ ███ ████████ ██ ████ ██ ████ ██████ ███
Intro to Topic ·
Speculative bubble
Speculation is when I buy a machine merely because I speculate that someone else is willing to pay more for the machine. If everyone thought like that, it would drive up the price of the machine. Contrast with buying a machine because I expect that the machine can produce goods that will earn a return on my investment.
Mackay ·
17th century Dutch tulip market is example of speculative bubble
Garber ·
Disagrees; it's not
P2
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Background Facts ·
Netherlands was center of tulip cultivation
One Semper Augustus bulb, a prized variety, sold for $11k (in today's money).
Mackay ·
Rapid price increase attracted speculators which further fueled price increases leading to sudden price collapse
P3
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Garber ·
Price rise and fall can be explained by economic fundamentals
Garber ·
Explanation of price rise
A new and prized variety naturally commands higher prices. This accounts for the initial rise in prices.
Garber ·
Explanation of price fall
Over time, there is more supply of the prized bulbs leading to a fall in prices.
Garber ·
But that's not a speculative bubble
Original high price of the bulb was rationale. The bulbs produced future generations of bulbs and hence produced a return on investment. It was not just speculation that someone else will be willing to pay even more for the bulb.
Passage Style
Critique or debate
Phenomenon-hypothesis (RC)
26.
The main purpose of the ██████ █████████ ██ ██
a
present the facts ████ ███ ████████ ██ ███ ███████ ██ ███ █████
Garber disagrees with Mackay regarding whether the tulip market involved a speculative bubble. So P2 doesn’t present “the facts that are accepted by all experts in the field.”
b
identify the mistake ████ ███ ███████ ███████ ███████ ███████ ████
P3 is where Garber identifies how he believes Mackay’s reasoning goes wrong. But P2 doesn’t identify any mistake in Mackay’s reasoning.
c
explain the basis ██ █████ ███ ███████ █████ ██ █████████ ████ █████ ███████ ███████ █████████
This best captures the purpose. P2 presents the basis on which Mackay makes an inference (that the Dutch tulip market involved a speculative bubble). Another scholar, Garber, disagrees with this inference. Although that disagreement is explained in P3, (C) doesn’t claim that the disagreement is presented in P2.
d
undermine the case ████ ███ ███████ █████ ███ ███ █████ ████ █████ ███████ ███████ █████████
P2 doesn’t involve any undermining of Mackay’s view. P2 simply presents the facts underlying Mackay’s view and Mackay’s interpretation of those facts.
e
outline the factual ██████ ████ ███ ███ ███████ ██ ████ ███ █████████ ████ ██ ████
P2 doesn’t involve any criticism of Mackay’s view. P2 simply presents the facts underlying Mackay’s view and Mackay’s interpretation of those facts. In addition, Garber doesn’t accuse Mackay of making any factual errors. Rather, Garber takes a different interpretation of the same facts that Mackay used.