Celebrity chef, Robbie Fray, has been growing in popularity. The television stud

Question

Celebrity chef, Robbie Fray, has been growing in popularity. The television studio had raised ticket prices from $75 to $300. Customers paying $300 are thrilled about going to a filming of their favorite show. Shortly after this price increase, Robbie Fray decides to check into a weight loss clinic and make the show about vegetable smoothies. Unable to sell tickets for $300 after Robbie Fray?s reform, the studio lowers the price to $80 per ticket. Does the preceding description fit the definition of an asset bubble? Yes - The increase in price followed by a decrease in price is enough to show there was an asset bubble regardless of how much higher the final price (here, $80) was. Yes - Since the intermediate price of $300 per ticket was significantly higher than the $75 or $80 per ticket before and after prices, this must have been an asset bubble. No - Since people were using the tickets instead of investing in them, this was not an asset bubble. No - Since the price did not fall to its original level (or even lower), it was not an asset bubble. With the sudden rise in enthusiasm for Robbie Fray?s show, some had bought tickets from the television studio for $300 with intention of selling them second-hand for even more. Some scalpers succeeded in selling tickets for $1,000. However, with Robbie Fray?s changes to the show, most scalpers are experiencing significant financial losses as ticket prices plummet. Did the second-hand market for tickets experience an asset bubble?

Explanation / Answer

1)

An asset bubble is formed when prices of assets like housing, stocks or gold are over inflated.

Thus, this is not an asset bubble, since people were using the tickets instead of investing in them.

2)

Yes. The second hand market faced an asset bubble. This is so because, people invested in the tickets, by buying them and reselling them for a higher value.

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