A black market is a place where people exchange goods illegally and conduct all transactions through illegal channels to avoid government price controls and taxes. It negatively affects the economy since sellers don’t pay taxes and provide customers with goods prohibited by the law.
In this article, we’ll find out how the black market started and why they exist now. We’ll also uncover how they affect the economy and the way the government controls them.
Why do black markets exist?
Black markets allow people to exchange products or services prohibited by the government. They emerge when sellers want to evade taxes on illegal and legal goods. As a result, these transactions are unrecorded so that both sellers and buyers don’t need to pay any money to the government. Illegal trade arises when people don’t have the right to work legally yet they still need money for living. You can see black markets in countries where government-imposed price ceilings cause shortages.
High levels of unemployment often provoke workers to look for at least some kind of job to make money. People who don’t have the opportunity to find a job legally end up in illegal work. They don’t report their occupation and salary to the government and don’t pay taxes. Some enter black markets because of the numerous licensing restrictions they can’t afford to invest money in.
Now that you know why black markets exist, let’s find out how they started.
How did the black market start?
Black markets started their existence in wartime when countries imposed restrictions on resources important for human life, primarily food. Products like gasoline, rubber, and metal also fell under the restrictions. Governments introduced rationing to provide everyone with a fair share of food. This step resulted in people getting involved in illegal activities, selling and buying in black markets. They peaked during World War II when the majority of countries enforced rationing and price control.
People came up with different ways to illegally sell their goods. For example, farmers reported a fewer number of births of new animals to supply meat to buyers illegally. There was also a case when US supplies only for the US army got to the British black market.
It’s time to find out how black markets influence the economy.
How do black markets affect the economy?
Underground markets negatively influence legitimate businesses which can’t compete with usually lower prices of goods. As a result, they can even be driven out. To force people to buy from them, some illegal sellers deliberately create shortages of legal products and services.
All transactions on black markets happen without the government’s consent and permission. The shadow economy activities also don’t involve the payment of taxes. This affects the revenue of the government that could have used the money on the services of the country's citizens. Since underground market economic activity isn’t mentioned in the statistics, it undervalues its GDP (gross domestic product) as well.
Let’s have a look at the ways the government controls the black market.
How does the government control the black market?
To stop the activity of the underground economy is almost impossible. The majority of sellers offer illegal products or services in a way that bypasses generally accepted laws. Goods that make up the largest percentage of goods on the black market are shoes, apparel, and accessories. Years ago, all illegal transactions were in cash so as not to leave a trace. Nowadays when the internet allows using the dark web and digital currencies, black market transactions are conducted online.
The US government tries to fight illegal trade. Customs and Border Protection authorities prevent illegal goods from entering the United States while the Drug Enforcement Administration and the FBI do everything possible to reduce drug trafficking.
The shadow economy has a long history and continues its existence until today. There are still a lot of sellers and buyers involved in black markets which now go online.
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- In this article, you’ll find the definition and example of a black market.
- This article unveils the origins and causes of black markets.
Last Updated: 06.08.2021