Black Market refers to the market where buying and selling of products and services take place in an illegal manner. The goods that are sold in the Black Market can be illegal such as weapons, illegal drugs or stolen goods. On the other hand, legal goods can be sold illegally that is the goods can be sold without having proper license and can be exchanged without paying any kind of taxes. In the Black Market goods and services are purchased and sold violating all restrictions like rationing or price controls. So, the transactions that take place in the Black Market are “under the table” transactions, which occur outside the govt.-sanctioned channels.
Though Black Markets normally exist in every country, the Black Market operations rise in the time of war or any other crisis. Because at the times of uncertainties scarce goods and services are strictly rationed and people often violate restrictions or rationing law to secure required goods and services.
Other than black marketing of goods and service, Black Market Foreign Exchange Transactions take place in the countries where convertible foreign currency is scarce and the govt. strictly controls the exchange rate.
Black Market Prices
Prices of the goods in the Black Market can be of two types. Price prevailing in the Black Market can be lower than the legal market prices as the goods are either stolen or is produced at low cost because of avoiding Taxes. On the other hand, price of products in the Black Market can be higher than the normal prices if the supply of the goods is restricted by govt. This higher price incidence takes place in case of dealing of weapons, illegal drugs and other goods, which are difficult to acquire legally.
One question may appear in this case that, when goods are being available at low prices in the Black Market, why should somebody purchase the same good at higher price from legal market. But, in general many people prefer to buy things from the legal market even by paying higher prices because of different reasons. People think that in Black Market business operations are carried immorally and they don't want to support the immoral act by involving in black market transactions. Not only this, the people tend to trust the producers of the legal market more. They know that in case of any fault in the goods or services; they can easily contact the legal suppliers and can avoid loss. People also avoid buying any product from Black Market because the goods available in the Black Market are often stolen ones and in some countries it is a criminal offence to own a stolen good.
The Black Market activities can be removed or at least reduced by softening of the legal restrictions on goods and by increasing the availability of the goods, which are otherwise difficult to acquire. Removal of legal restrictions can result in more buying and selling of the product and the price of the products are likely to drop because of the greater availability. As a result people will move from the Black Market to the legal markets.
But, sometimes it is not right on ethical background to remove legal restrictions from some harmful goods. In those cases govt. may try to decrease the demand for such goods though it is something very difficult to do in reality.