Another way that a transaction can be illegal is if it is an otherwise legal good or service that is bought or sold in such a way as to avoid proper licensing or taxes.
This is the case with unregistered firearms and cigarettes, which usually include a hefty local, state, or federal tax. They do, however, tend to develop more readily in states or countries with especially heavy regulation. Even though a good or service becomes outlawed or heavily regulated, the market may continue to demand it.
This is the case when governments place price controls, rationing or complete prohibition on a good or service. Prices on this market tend to be higher due to smaller supply and constant demand. Maybe you went to the venue anyway and bought an overpriced ticket from some character hawking tickets outside.
Ticket scalping, resales, and price gouging are hard to combat, as there is no federal regulation. When goods become scarce, they frequently end up on the black market. It comes into play when previously legal items are banned, like alcohol during Prohibition. Fortunately, we can now pour ourselves a glass of wine after a rough day, but if your vice is one of the items below, you may have to bend some rules to get a hold of it.
Now and then, some strange and downright comical items end up creeping through shady deals and back alley shops. Like …. These little bad boys started popping up across the black market in when Hostess announced it was hanging up its apron. After all, a decent supply of these babies can quite literally last forever. Yes, I know there are expiration dates on the packages, but do those really count for Twinkies?
Thankfully, though, the sugar-dark ages came to an end. Hostess eventually reconsidered and brought back Twinkies after about a year, and the black market in these yellow pop culture icons collapsed. Much like the Twinkie shadow economy, Choco Pies from South Korea made it onto the list of criminally traded items. These chocolate-covered, marshmallow-filled pillows became a hot commodity in North Korea.
Black markets can also appear when government-imposed price ceilings create shortages. For example, if the government caps the price at which a grocery store may sell bottled water after a natural disaster, the store will quickly run out of water.
Vendors will then likely appear selling water at the higher prices people are actually willing to pay. This secondary market is a black market. Governments can also cause black markets through overregulation. An extreme example can be found in Cuba, where the rationing and ineffective central planning of communism made it difficult to purchase the desired quantities of even basic products such as cooking oil. Black markets are rampant because citizens want to buy things that are difficult to come by through legal channels.
They're also common because it's so hard to find a job. High unemployment can give rise to black markets. When workers can't find jobs in the above-ground economy, they may turn to jobs in the underground economy.
These jobs could be as innocuous as fixing a neighbor's toilet but being paid in cash and not reporting the income to the tax authorities or as serious as selling cocaine where not only the sale of the product itself but also the non-reporting of taxable income is illegal.
Consumers can buy and sell numerous types of goods and services on the black market. Anything that is subject to the conditions described in the previous sections can show up in the underground economy. In the United States, we tend to think of illegal drugs, prostitution, designer knockoffs, and ticket scalping when we think of black markets.
More serious and lesser-known black markets operating worldwide include those in human organs, endangered species, babies, weapons, and slave labor human trafficking. Black markets also exist where people might never expect to find them. Online, it's possible to buy an eBay account to falsely obtain a favorable seller rating and to buy Instagram followers to inflate one's perceived popularity.
Some people are in favor of black markets. These markets can supply goods that, while illegal such as marijuana , arguably improve quality of life for example, when used to alleviate pain for patients who haven't found relief from legal pharmaceuticals. Black markets can provide legal necessities that are in short supply, as in the case of everyday Cuba or a city hit by a hurricane. Also, the shadow economy makes it possible for people to earn a living who would otherwise be destitute or seek welfare—people who would be perfectly employable under less government regulation or in an economy with a higher employment rate.
Overall, the case for black markets is highly subjective and depends on one's moral and ethical beliefs. If you think that drug use is a victimless crime, you might not have a problem with the black market for illegal drugs.
If you think tax rates are too high, you might be happy to hire workers under the table. How does the government control the black market? 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. 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.
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. 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.
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