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At the peak of tulip mania in Holland, in March 1637, some single

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At the peak of tulip mania in Holland, in March 1637, some single [#permalink]

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New post 23 Nov 2017, 09:58
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Question 1
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Question Stats:

59% (03:00) correct 41% (01:56) wrong based on 44

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Question 2
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54% (00:40) correct 46% (00:54) wrong based on 41

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Question 3
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40% (00:59) correct 60% (00:35) wrong based on 40

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Question 4
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74% (00:47) correct 26% (00:13) wrong based on 38

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At the peak of tulip mania in Holland, in March 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble. The term "tulip mania" is now often used metaphorically to refer to any large economic bubble (when asset prices deviate from intrinsic values).

The event was popularized in 1841 by British journalist Charles Mackay. According to Mackay, at one point 12 acres of land were offered for a Semper Augustus bulb. Mackay claims that many such investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock. Some modern scholars, however, feel that the mania was not quite as extraordinary as Mackay described. Some even argue that not enough price data remain, historically, to represent an all out tulip bulb bubble.

In her 2007 scholarly analysis Tulipmania, Anne Goldgar states that the phenomenon was limited to "a fairly small group", and that most accounts from the period are based on a few contemporary pieces of propaganda. While Mackay's account held that a wide array of society was involved in the tulip trade, Goldgar's study of archived contracts found that even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Thus, any economic fallout from the bubble was very limited. Goldgar, who identified many prominent buyers and sellers in the market, found fewer than half a dozen who experienced financial troubles in the time period, and even of these cases it is not clear that tulips were to blame. This is not altogether surprising. Although prices had risen, money had not exchanged hands between buyers and sellers. Thus profits were never realized for sellers; unless sellers had made other purchases on credit in expectation of the profits, the collapse in prices did not cause anyone to lose money.

There is no dispute that prices for tulip bulb contracts rose and then fell in 1636–37, but even a dramatic rise and fall in prices does not necessarily mean that an economic or speculative bubble developed and then burst. For tulip mania to have qualified as an economic bubble, the price of tulip bulbs would need to have become unhinged from the intrinsic value of the bulbs. Modern economists have advanced several possible reasons for why the rise and fall in prices may not have constituted a bubble. For one, the increases of the 1630s corresponded with a lull in the Thirty Years' War, which occurred between 1618 and 1648. Hence market prices were responding rationally to a rise in demand. However, the fall in prices was faster and more dramatic than the rise, and did not result from a sudden resurgence in the war.

1. The author of the passage implies that had the lull in the Thirty Years' War ceased more abruptly then

A. the tulip mania would have likely spread throughout other parts of Europe
B. the price of tulips would not have become separated from the intrinsic worth of the flower
C. the price of the tulips would have fallen at a similar rate, if not even more steeply
D. the drop in the number of tulips traded would not have been as significant
E. the aristocracy would have likely suffered significant losses as a result of the tulip trade

[Reveal] Spoiler:
C

2. Based on the passage, all of the following are mentioned as casting doubt on Mackay’s thesis EXCEPT

A. Accounts of tulip mania came from limited and not totally credible sources
B. Trade of tulips was limited to a certain group of people
C. There was a dearth of information relating to the price of tulips throughout the mania
D. The nobility ceased to trade in tulips once prices began to increase sharply
E. The rise in the price of tulips corresponded with the changes in the Thirty Years War

[Reveal] Spoiler:
D

3. It can be inferred from the passage that which of the following applies to the merchant and skilled craftsmen in 17th century Holland who traded in tulips?

A. They made up a smaller total percentage of the economy than did the nobility.
B. They were likely to experience financial difficulties during the tulip mania.
C. They used the term “tulip mania” to refer to the high prices of tulips in the 17th century.
D. They caused an economic crisis through their speculative trading of tulips.
E. They commonly sold highly priced tulips to members of the nobility.

[Reveal] Spoiler:
A

4. The author of the passage believes that an economic bubble occurs when

A. the demand for a luxury good becomes far greater than the supply of that good
B. the price of a good far exceeds the inherent worth of that good
C. too many buyers pay a price that the sellers know is inflated
D. there is a sudden absence of any buyers for a product
E. there a dramatic rise in prices followed by a sudden drop

[Reveal] Spoiler:
B

[Reveal] Spoiler: Question #1 OA
[Reveal] Spoiler: Question #2 OA
[Reveal] Spoiler: Question #3 OA
[Reveal] Spoiler: Question #4 OA

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Re: At the peak of tulip mania in Holland, in March 1637, some single [#permalink]

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New post 24 Nov 2017, 14:16
8:30;3 out of 4. Whiffed on the inference question on #3.

#3 is A and not B because it explicitly mentions that "many prominent buyers... fewer than half a dozen who experienced financial troubles" suggesting that it is unlikely that even an average merchant/craftsmen is likely to experience financial pains because less exposure to that industry?

But, im still not sure that we could properly infer that merchants/craftsmen total econ % < nobility econ %. Am I missing something in my read?

Passage referenced below:
"even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Thus, any economic fallout from the bubble was very limited. Goldgar, who identified many prominent buyers and sellers in the market, found fewer than half a dozen who experienced financial troubles in the time period, and even of these cases it is not clear that tulips were to blame"

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Re: At the peak of tulip mania in Holland, in March 1637, some single [#permalink]

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New post 30 Nov 2017, 01:28
geniecc wrote:
8:30;3 out of 4. Whiffed on the inference question on #3.

#3 is A and not B because it explicitly mentions that "many prominent buyers... fewer than half a dozen who experienced financial troubles" suggesting that it is unlikely that even an average merchant/craftsmen is likely to experience financial pains because less exposure to that industry?

But, im still not sure that we could properly infer that merchants/craftsmen total econ % < nobility econ %. Am I missing something in my read?

Passage referenced below:
"even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Thus, any economic fallout from the bubble was very limited. Goldgar, who identified many prominent buyers and sellers in the market, found fewer than half a dozen who experienced financial troubles in the time period, and even of these cases it is not clear that tulips were to blame"



even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Thus, any economic fallout from the bubble was very limited

It is pretty evident from this line that people who traded tulips constituted a minor part. If they had constituted a larger part , the economic fallout would have been severe.

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Re: At the peak of tulip mania in Holland, in March 1637, some single [#permalink]

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New post 30 Nov 2017, 02:17
1. The author of the passage implies that had the lull in the Thirty Years' War ceased more abruptly then

A. the tulip mania would have likely spread throughout other parts of Europe
B. the price of tulips would not have become separated from the intrinsic worth of the flower
C. the price of the tulips would have fallen at a similar rate, if not even more steeply
D. the drop in the number of tulips traded would not have been as significant
E. the aristocracy would have likely suffered significant losses as a result of the tulip trade




Text Explanation

According to the passage, the lull in the Thirty Years War led to an increase in demand. So the rise in the demand for tulips was expected. The passage says that the prices of tulips suddenly fell, though there was still a lull in the war. Thus, we can infer that the lull did not cause the drop in prices. Had the lull suddenly stopped—as the question asks—then the prices most likely would have still fallen. And since the start of war would have brought about a general drop in demand, the demand for tulips may have fallen even more quickly. This matches up best with (C).

(A) is not supported by the passage. If anything, the passage suggests the opposite: tulip mania would have spread throughout Europe.

(B) is wrong. The war starting up again would not affect the rise in prices of tulips since the price was already falling, regardless of the status of the war.

(D) is effectively the opposite of what (C) is saying. (D) is wrong because we would expect the drop to be the same or even greater.

(E) is worded unpleasantly and refers to the aristocracy again. We have no support in the passage with regards to the aristocracy and there hold on the tulip industry, so we can eliminate (E).


FAQ: What does this sentence mean: "The passage says that the prices of tulips suddenly fell, though there was still a lull in the war"?

A: First, a "lull" is a pause. So, a lull in the war = a pause in the war.

The author of the passage implies that had the lull in the Thirty Year’s War ceased more abruptly then the price of the tulips would have fallen at a similar rate, if not even more steeply.

This can be re-written as:

The author of the passage implies that if the lull in the Thirty Year’s War had ceased more abruptly then the price of the tulips would have fallen at a similar rate, if not even more steeply.

This sentence expresses an "if" conditional.

the price of the tulips would have fallen at a similar rate, if not even more steeply.

This is saying that either the price of tulips would have fallen at a similar rate, orthe price would have fallen even more steeply.

How do we know this is true? The passage says:

For one, the increases of the 1630s corresponded with a lull in the Thirty Years' War, which occurred between 1618 and 1648. Hence market prices were responding rationally to a rise in demand. However, the fall in prices was faster and more dramatic than the rise, and did not result from a sudden resurgence in the war.

So, prices went up when the war stopped (a lull in the war = a stop in the war). Demand rose during peacetime.

However, prices suddenly went down very suddenly, even though the war had not started yet.

The question asks us what would have happened to prices if the war had started again sooner. Well, we know that demand went up because the war stopped. Thus we can infer that demand would go down if the war started again. Therefore, if the war had started sooner, prices would have gone down just as much, or even more, than they actually had.
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Re: At the peak of tulip mania in Holland, in March 1637, some single [#permalink]

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New post 30 Nov 2017, 02:20
3. It can be inferred from the passage that which of the following applies to the merchant and skilled craftsmen in 17th century Holland who traded in tulips?

A. They made up a smaller total percentage of the economy than did the nobility.
B. They were likely to experience financial difficulties during the tulip mania.
C. They used the term “tulip mania” to refer to the high prices of tulips in the 17th century.
D. They caused an economic crisis through their speculative trading of tulips.
E. They commonly sold highly priced tulips to members of the nobility.




Text Explanation

According to Goldgar only merchants and skilled craftsmen were involved in the tulip trade, not nobles. Her conclusion? That the economic impact was limited. Therefore, the merchants and skilled craftsmen who were involved in tulip trade did not have that much of an effect on the economy as did the nobility. This leads us to answer choice (A).

(B) sounds tempting. But the paragraph goes onto say that Goldgar “found fewer than half a dozen who experienced financial troubles.”

(C) is wrong because nowhere does the passage say that the merchants coined the term “tulip mania.”

(D) goes against the entire Goldgar paragraph, which says the economic fallout was limited to the merchants. Thus, there was no broader economic crisis.

(E) is in no way supported by the passage.


FAQ: Can you explain choice A in more detail?

A: The answer choice (A) is correct because this question is an inference question, so the answer choice won't be directly stated in the passage—we have to infer it from the information they do mention in the passage! :D


Let's take a closer look! :) The key to this inference question is in the third paragraph:

While Mackay's account held that a wide array of society was involved in the tulip trade, Goldgar's study of archived contracts found that even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Thus, any economic fallout from the bubble was very limited.

In other words, Anne Goldgar's study found that the tulip trade was conducted by merchants and skilled craftsmen who were not part of the nobility. Goldgar's study, which finds that only a small group of merchants and craftsmen was involved in the tulip trade, actually contrasts with Mackay's account (in paragraph 2) that "a wide array of society was involved in the tulip trade." In addition, economic fallout from the tulip bubble was "limited," because only this small, "exclusive" group of merchants and craftsmen was affected—and not the nobility.

From this part of the passage, we might conclude that if members of the nobility had been involved in the tulip trade, then the economic impact and fallout may have been more widespread and not so "limited." So we can infer that the nobility must have had more economic power and impact. That is, the nobility must have made up a larger percentage of the economy.
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Re: At the peak of tulip mania in Holland, in March 1637, some single   [#permalink] 30 Nov 2017, 02:20
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