Tulips in Netherlands?

Question

Ok, I have been thinking about this one, and I need some educated input.

Here are some givens:
Average Income : 150 Florins
Average cost of large pig : 30 Florins
Average cost of tulip bulb : 2500 Florins

The price depended on color, type as well. The highest price was 6000 Florins for one tulip bulb.

The next year in 1637, the price of a tulip bulb plummeted, drastically.

Question: Why did the price of Tulipd skyrocket, and why did they plummet the next year?

Thank You Very Much for your input

Answer 1

It was a bubble and it burst. Tulips where never worth that much of course but people got carried away and in the feverish atmosphere prices skyrocketed.

Answer 2

"Sometime in the year 1637, a Dutch farmer was in the market for a tulip. Upon finding a bloemist who carried the specific variety of flower that he desired, the farmer entered into negotiations with the flower-seller. When an agreement had been reached, the farmer acquired his flower-bulb. The purchase price that the farmer apparently deemed reasonable for a single tulip-bulb of the Viceroy variety included “two [loads] of wheat and four of rye, four fat oxen, eight pigs, a dozen sheep, two oxheads of wine, four tons of butter, a thousand pounds of cheese, a bed, some clothing and a silver beaker.”1 Such a high price, estimated at approximately 2,500 guilders, for a single tulip was not unusual. During the height of the Dutch ‘tulip mania’ in the seventeenth century, a Semper Augustus, considered to be even more precious than the Viceroy tulip, could bring in close to 6,000 guilders. In fact, tulip prices and the practice of tulip speculation became so excessive and frenzied that in 1637 the States of Holland passed a statute curbing such extremes. "
http://www.bell.lib.umn.edu/Products/tulips.html

Answer 3

Initially it was due to shortage. The multicolored varieties are a result of a virus. People would come to buy them and they were sold out for the year so they would ask to pre-order for next year. Farmers, thrilled to presale their crop, were more than happy to accomodate. Tulip production is a function of land area dedicated to their production. So it is slowly changing.

The next year occured and the shortage occured earlier due to the purchases in the next year from the prior year and of course prices increased. This continued for about a decade and peaked at about the time people realized that tulips were a sure thing, after all no one ever lost money in the tulip market.

Then, one day, someone noticed that they were buying a tulip and decided to not buy any. The price collapsed. At some point the marginal cost to produce one ended up equalling the marginal revenue and the world returned to normal.

Answer 4

The "alternate" view is the one to look at, in the link below. It was probably Government action:
http://en.wikipedia.org/wiki/Tulip_mania

Look at the prices of houses, in the United States. Piddly little dumps in California and Florida going for hundreds of thousands of dollars, if not a million dollars or more. Why did this happen? Because the Federal Reserve lowered interest rates to below the rate of inflation. It was cheaper to borrow than it was, to save. So people borrowed. And they put their borrowed money into houses. As more money flowed into houses, the prices of houses rose. This caused more borrowing, which brought about more money, which caused more increases in prices. This situation continued until a substantial portion of the population had borrowed so much money that they were barely able to make the payments on their loans. Then, the Federal Reserve started to raise interest rates. People with adjustable-rate mortgages are having their loan payments increased. They can't afford to pay these higher loan payments, so they sell their houses. With more houses coming onto the market, the prices of houses go down. This causes fear on the part of homeowners, who begin to put their houses on sale in order to get out now, before the prices fall any further. This puts more houses on the market, which brings prices lower, which causes more people to panic, which causes more houses to be put on the market...

That's how it happens. Government policies are usually to blame.

Answer 5

Educated guess? Crop failure and then over abundance... flooding the market.