Objective
The student will be able to:
- Recognize that people invest in order to earn a return on their investment, and that higher rates of return are usually associated with higher risks.
- Understand that expected demand can drive the price of a product extremely high, as people buy with the hope of reselling at a higher price.
- Determine that speculative prices can collapse either because people stop believing that the price of the product will continue to increase, causing
demand to fall, or sellers liquidate their stocks, causing supply to fall.
Concepts
History: The tulip was introduced into western Europe from the Middle East in the middle of the 1600s. It flourished in the Dutch climate and became a local favorite. As the popularity of tulips increased, the price of tulip bulbs soared. A single tulip bulb sold for hundreds of times the price of a pig or a sheep and a thousand times higher than the price of a bushel of wheat.
Mystery: Why would people choose to spend a fortune on a single tulip bulb?
Lesson Description: Students review the prices of many goods in the 1600s in the Netherlands and compare them to prices paid for rare tulip bulbs during the Great Tulip Boom of the 1630s. They then perform a simulation of the boom and write a short essay expressing their personal feelings about the relationship between risk and rates of return in this lesson from the Council for Economic Education curriculum World History: Focus on Economics.
Looking for more lessons like this one? “Focus: Middle School World History” is available from CEE’s book store.