Black Market

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The Black Market also known as the underground market is the part of economic activity involving illegal dealings. Typically the buying and selling of merchandise or services illegally. Goods such as weapons and illegal drugs are inherently illegal, merchandise may also be stolen or may be otherwise legal goods sold illicitly to avoid tax payments or licensing requirements, such as cigarettes.

Black markets develop when the state places restrictions on the production or provision of goods and services that come into conflict with market demands. When state restrictions are heavy, such as a period of prohibition price controls or rationing, the market prosper. Black markets are present in any economy. "Black Market" comes from a time in the eighteenth century when southern Carolina slaves were encouraged to grow their goods to market. As they grew profitable, local government barred white people from buying their food, yet many continued to do so.

As a result of an increase in government restrictions, black market prices, for the items most needed, will rise. Restrictions represent a decrease in supply and an increase in risk on the part of the suppliers, sellers, or any middlemen. A decrease in supply will increase prices, and also increased enforcement of restrictions will increase prices for the same reason. There are two levels in illegal goods. One is the good may be less expensive than legal market prices because the supplier did not pay the normal costs of production or pay the taxes. Illegally supplied products can be too difficult to get and may as well not be available legally.

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 alcohol under prohibition in the United States, the black market will prosper. The black marketers often reinvest profits in a diverse way. Black market prices can be reduced by removing the relevant legal restrictions. The term "...
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