How the black market works

What is the black market?

The black market is a trading platform, whether physical or virtual, where goods or services are illegally exchanged. The reason that makes the market “black” may be the illegal nature of the goods and services themselves, the illegal nature of the transaction, or both.

For example, although it is not illegal to buy or sell food, when the goods sold are illegal, the transaction will enter the black market. Although the sale of hamburgers is completely legal, when an all-cash restaurant does not pay the mandatory sales tax on its transactions to the state government, it also enters the black market.

Why is there a black market

When people want to exchange goods or services prohibited by the government, there will be a black market, also known as a shadow market. Since transactions are not recorded, the black market has distorted economic data. Black markets can also occur when people do not want to pay taxes on transactions in legal or illegal goods or services. Some black markets exist only because people do not realize that they have not complied with certain laws, such as bartering and not reporting the taxable value of the transaction, or hiring an ordinary housekeeper or nanny but not paying employment tax.

License-driven black market conditions

The licensing restrictions imposed by the government on many occupations have led some workers to enter the black market because they do not want or can not invest time and money to obtain the required permits. For example, in New York City, in order to legally operate a taxi business, a license called a medal must be purchased. These medals are worth hundreds of thousands of dollars and are prohibitively high for most entrepreneurs. Therefore, some people may choose to operate black market taxis without a license-at least until they are caught. Ride-sharing services such as Uber or Lyft further split the market for such companies.

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Trade-driven black market conditions

Sometimes black market participants do not want to act illegally, but because they lack the ability to work legally and need to make money, they will not report their work or income to the government. This happens when illegal immigrants find a job, students who travel abroad are employed without a work visa, or children work in violation of the minimum age requirement.

Regulation-driven black market conditions

A black market may also occur when the government’s price ceiling creates a shortage. For example, if the government sets a ceiling on the price at which a grocery store can sell bottled water after a natural disaster, the store will soon run out of water. Suppliers may sell water at a higher price people are actually willing to pay. This secondary market is a black market.

The government can also lead to a black market through over-regulation. An extreme example can be found in Cuba, where communist rationing and ineffective central planning make it difficult to purchase even basic products such as cooking oil in the required quantities. The black market is rampant because citizens want to buy things that are difficult to obtain through legal channels. They are also very common because it is difficult to find a job.

Economically driven black market conditions

High unemployment will trigger a black market. When workers cannot find a job in the above-ground economy, they may turn to work in the underground economy. These jobs may be as harmless as repairing a neighbor’s toilet (but paying in cash and not reporting income to tax authorities) or as serious as selling cocaine (not only selling the product itself, but not reporting taxable income is illegal).

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What can you buy on the black market?

Consumers can buy and sell many types of goods and services on the black market. Anything that meets the conditions described in the previous sections may appear in the underground economy. In the United States, when we think of the black market, we often think of illegal drugs, prostitution, designer counterfeit goods, and scalping.

The more serious and lesser-known black markets that operate globally include those of human organs, endangered species, infants, weapons, and slave labor (human trafficking).

Black markets also exist, and people may never expect to find them. Online, you can buy eBay accounts (to obtain favorable seller ratings in the wrong way) and buy Instagram followers (to increase your visibility).

Black market case

Some people are in favor of the black market. These markets can provide goods that are illegal (e.g. marijuana) but can be said to improve the quality of life (e.g., when used to relieve the suffering of patients who have not yet received relief from legal drugs).

The black market can provide legal necessities that are in short supply, just like everyday Cuba or cities hit by hurricanes. In addition, the shadow economy makes it possible for people who would otherwise be impoverished or seeking welfare to earn a living-these people can be employed under the circumstances of less government supervision or in economies with higher employment rates.

In general, black market cases are highly subjective and depend on a person’s moral and ethical beliefs. If you think that drug use is a victimless crime, then you may not have any problems with the illegal drug black market. If you think the tax rate is too high, you may be happy to hire workers under the table.

Cases against the black market

The black market has many shortcomings, some of which are subjective, but almost everyone will agree that many of them are serious problems.

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Some black market commodities were stolen from the legal market, taking business away from law-abiding entrepreneurs. Although some consumers may not mind buying stolen designer handbags at discounted prices because they think the retailer’s prices are too high, if others know that although they think they are just bargaining, they are actually supporting organized Criminal gangs, they will be shocked. In addition to theft and resale of stolen goods, organized crime usually has a dark side. This and other black market activities are sometimes used to finance terrorism because profits are not easily tracked.

Violence is another problem inherent in the black market. Since these markets are not regulated, participants cannot rely on legal police protection in the event of theft or other crimes. If the cocaine concealed by a drug dealer is stolen by a rival drug dealer, he cannot ask the police to help him retrieve his merchandise. The dealer may send one of his employees to shoot the thief and recover the stolen property, thereby further exacerbating the impact of the original crime.

Another argument against the black market is that because their participants do not pay taxes, the tax burden on law-abiding citizens is heavier.

Bottom line

As long as we have regulations and taxes, the black market will continue to exist. Laws that prevent people from buying and selling the goods and services they want, as well as taxes that prevent people from retaining their fair share of the income they believe they earn, will always cause people to conceal their activities from law enforcement agencies, tax authorities, and other regulatory agencies.

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