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Black markets are said to develop when the state places restrictions on the production or provision of goods and services that come into conflict with market demands. These markets prosper, then, when state restrictions are heavy, such as during prohibition or rationing. However, black markets are normally present in any given economy; where there are laws, someone will break them.
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. 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.
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. 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.
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:
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.
The Prohibition period in the United States is a classic example of black market activity, when organised crime groups took advantage of the lucrative opportunities in the resulting black market in banned alcohol production and sales.
In many countries today, it is argued a " war on drugs" has created a similar effect for drugs such as marijuana.
Similarly since prostitution is illegal in many places, a black market develops.
Black markets have also flourished in some countries during wars, especially World War II when rationingRationing is the controlled distribution of resources and scarce goods or services: it restricts how much people are allowed to buy or consume. Rationing, for whatever reason, controls the size of the ration one's allotted portion of the resources being d and price controls were enforced in many countries.
See also: business ethicsGeneral definition Business Ethics is the branch of ethics that examines ethical rules and principles within a commercial context; the various moral or ethical problems that can arise in a business setting; and any special duties or obligations that apply, grey marketThe grey market refers to the flow of goods through distribution channels other than those authorized by the manufacturer or producer. Unlike those on the black market, grey market goods are not illegal. Instead, they are being sold outside of normal dist
Compare: informal economyIn economics the informal economy is the system of exchange used outside state-controlled or money-based economic activities. The informal economy consists of barter, mutual self-help, odd jobs, allotment farming, street trading, and other similar activit