Black market

The black market is the sector of economic activity involving illegal economic dealings, typically the buying and selling of merchandise illegally. The goods may be themselves illegal, such as the sale of prohibited weapons or the illegal drug trade; the merchandise may be stolen; or the merchandise may be otherwise legal goods sold illicitly to avoid tax payments or licensing requirements, such as cigarettes or unregistered firearms. It is so called because "black economy" or "black market" affairs are conducted outside the law, and so are necessarily conducted "in the dark", out of the sight of the law.

Black market price

As a result of an increase in government restrictions, black market prices for the relevant products will rise, as said restrictions represent a decrease in supply and an increase in risk on the part of the suppliers, sellers, and any and all middlemen. According to the theory of supply and demand, a decrease in supply—making the product more scarce—will increase prices, other things being equal. Similarly, increased enforcement of restrictions will increase prices for the same reason.

Related Topics:
Risk - Theory of supply and demand - Scarce

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Goods acquired illegally can take one of two price levels. They may be less expensive than (legal) market prices because the supplier did not incur the normal costs of production or pay the usual taxes. Alternatively, illegally supplied products may be more expensive than normal prices, because the product in question is difficult to acquire and may not be available legally.

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In the former case, however, most people are likely to continue to purchase the products in question from legal suppliers, for a number of reasons:

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• The consumer may feel that the black market supplier conducts business immorally (although this criticism can extend to legal suppliers too).
• The consumer may—justifiably—trust legal suppliers more, as they are both easier to contact in case of faults in the product and easier to hold accountable.
• In some countries, it is a criminal offense to handle stolen goods, a factor which will discourage buyers.

In the latter case of a black market for goods which are simply unavailable through legal channels, black markets will thrive if consumer demand nonetheless continues. In the case of the legal prohibition of a product that large segments of the society view as harmless in spite of its legal status, such as under alcohol prohibition in the United States, the black market will prosper, and the black marketeers often reinvest profits in a widely diversified array of illegal activity well beyond the original "harmless" item.

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Black market prices can be reduced by removing the relevant legal restrictions, thus increasing supply. People who advocate this may believe that governments should recognize fewer crimes in order to focus law enforcement effort on the most treatable dangers to society. However, this can be seen by some people as the equivalent of legalizing crime in order to reduce the number of "official" criminals—in other words, a concession that in their view only makes matters worse. Alternatively, the government could attempt to decrease demand. However, this is economically out of fashion and not as simple a process as decreasing supply.

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