Question

define a stock market bubble, describe what happens after a bubble, and explain how the law of supply and demand creates both bubbles and it’s aftermath

Answer 1

Answer

A bubble is a phenomena in investing that occurs when investors increase their demand in assets so much that they cause the price to move to a value beyond accurate reflection of its actual worthiness. When a bubble happens, the prices of stock will fall rapidly.When there is increase in the share price of stock rapidly caused by individual-perpetuating, the share value can rise beyond asset value making investor to withdraw their money faster because supply will exceed demand and cause share price to fall.

An increase demand on assets by investors will make the price to increase beyond rational economic value. The real worth of the stock will now be determined by firm’s performance. Investing in bubble can appear to last forever, but because they are formed by self-perpetuated reasons, they eventually fall and the money that was invested into them is lost. In such cases, investors would run to withdraw their money and avoid the loss of fall in share prices.