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)
27.
The phrase "
a
against which other ███████ ████████ ███ ██ ██ ████████
The idea of “measuring” other pricing patterns is out of place. Measuring other pricing patterns connotes a desire to assess how other pricing patterns compares to some idealized or especially good pricing pattern. That’s not the sense in which “standard” is used here, because there’s no suggestion that there is some ideal or desirable pattern of price movements.
b
that conforms to █ ████████ ███████████ █████████
“Commonly agreed-upon” doesn’t fit here, because there’s no indication that people agree to a particular pricing pattern. The price changes of a flower in the market are simply things that occur due to various economic factors. We’re given no reason to think people agree to pricing patterns. If you interpret “agreed-upon” in the sense that people might agree that there exists a typical pricing pattern for new flowers, (B) is still incorrect, because we don’t know what other people think about the pricing pattern described by Garber. “Standard” isn’t being used in the sense of a standard that we try to meet or hold ourselves to; it’s being used in the sense of “typical.”
c
that is merely ██████████
The idea of acceptability doesn’t fit in connection with the phrase. Garber is simply describing what he views to be a pattern that is observed in a particular circumstance — when very prized flower varieties are developed. Garber doesn’t express any opinion about the acceptability of the prices (i.e. whether they should be higher, whether they’re just right).
d
that regularly recurs ██ ███████ █████ ██ █████
This best captures the meaning. Garber describes what he views to be the standard pricing pattern for new varieties of flowers:
e
that serves as ██ ████████
The “standard pricing pattern” is not an example of something broader. Although we can say that the pricing pattern observed in the tulip market is an example of what Garber views to be a standard pricing pattern, the question asks about the meaning of “standard pricing pattern.”