what is the bubble in economics? is it good for economy?

Question

bubble creates an inflation or deflation? is it good for common people? does these bubbles in market helps business man in any ways?

Answer 1

A 'bubble' is an upswing. When they talk about a 'bubble' bursting, they are saying that a market grew rapidly and then, suddenly, everyone bailed out. It's more of a 'deflation' or 'depression' than a 'bubble'. But, saying 'the bubble burst' creates a vivid mental picture, whereas saying 'the market is sharply depressing' is rather droll.

Bubbles are 'self corrections' in the economy. They are neither good nor bad. They simply ARE. It's like asking if rocks are good or bad. For an investor that sells before the bubble bursts, it's great. The 'swelling' of the market makes him money. For an investor that holds on until after the bubble bursts, it's not so good. However, for the investor that buys into the market shortly AFTER a bubble bursts, it's good.

Consider the mortgage and real estate 'bubble'. These two markets are closely tied together. If I were a homeowner that sold my house a year ago, I was getting out right before the bubble burst. I got a premium for my house. If my next door nieghbor had the same exact house as mine, and he decided to sell it today, he would get less than I did (in most areas). Since he waited to sell his, he is getting a worse deal than me, but the new owner is getting a great deal. It's all balanced, supply and demand. Every time someone makes money, someone else is losing money. That's just economics....

Answer 2

Bubble is when prices of assets rise ( asset inflation) higher than any realistic value that can be assigned to them. They are fueled by speculators that know this, but can still make money as long as they are not the lasts ones out. When bubbles break, and prices fall back to reasonable levels, the problems often spread beyond the investors to banks and other financial institutions that have loaned them money which can not now be repaid, This can causes problems in the real economy, and even trigger a recession. Some people and businesses make money and some lose, and some lose more than they have, and difference falls on everyone through higher borrowing cost and the resulting disturbances cause a net loss to the economy.