Black Market Essay Example | Topics and Well Written Essays - 2500 words

Black Market - Essay Example When foreign currency is set below the market rate, an excess demand is created for acquiring foreign currency. A government usually responds by devaluing the currency or setting quotas on purchase of foreign goods. A parallel underground economy emerges by manipulating the forces of supply and demand. A black market can also emerge if trade creates an artificial scarcity of goods which in the process causes high returns on their investments by profiteering. The black market generates unreported wealth and income. Officially allocated foreign exchange is resold in the underground market (Atkins, 609). Black market transactions are disruptive to society. They undermine the ban on goods and services which have been banned by the government. Legitimate businesses are at a disadvantage because goods and services are sold in the black market to avoid taxes. The underground market can also affect public revenues and delimit national productivity. It can also drain the balance of payments and distort equity concepts of economics (Atkins, 609). Black market transactions usually involve cash which is easy to evade detection by governments. It also bypasses complex financial operations. There is some dispute about the size of the black market. Economists look at the volume of cash which is circulated in a black market economy. The internet has emerged as the major indicator of the extent of the underground economy. eBay has 40 million users. Sellers are responsible to pay taxes but there is no study which details if the sellers pay taxes and whether governments have intervened to ensure they do (Atkins, 609). Goods sold in the black market can either be cheap or more expensive than normal prices. If goods are stolen than they can be cheaper than normal prices. However illegally supplied goods may be more expensive because of difficulties in production and dangers associated with trying to smuggle such goods in countries. Black markets thrive if consumer demands for goods which are not available through legal channels are unavailable (Bagnasco, 157). Underground markets can be reduced by removing the legal barriers for goods. Some people advocate that products like drugs should be legalized and government should focus on more dangerous elements of society. This has been countered by critics as legalizing crime. Removal of legal restrictions reduces the prices of goods. If products like drugs are legalized their prices would drop and most people would access trustworthy legal sources. Black market also consists of legal activities which are not reported to government tax authorities. Many corrupt officials in developing countries avoid paying taxes. Black money is the outcome of this practice. The black market has some important functions. It is a cash economy which is liquid and fast. It increases the flow of money. It injects foreign exchange into the economy and increases the money supply. It can also provide employment, create economic activity and encourage labor mobility. It is important for countries which face economic hardship. Developing countries have backward economies. Their technological expertise is primitive. Unemployment, dilapidated machines, dysfunctional infrastructure are rampant in such economies. Trade deficits, crime and budget deficits rise sharply in such economies