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What is the Black Market?

Updated on January 16, 2010

The Black Market is the illegal and clandestine business transactions conducted in violation of government restrictions on buying and selling. The restrictions may consist of rationing, price control, or a total ban on sales of a specific commodity. The buyer's objective is to obtain goods that he cannot get in legal markets or at legally established prices. The seller's incentive for black market operations is higher profits.

Black markets are most prevalent during a war and immediately afterward. At such times, because of shortages in essential goods for civilian consumption, virtually all governments regulate prices and sometimes the quantities of goods available for purchase. Illicit markets flourish most in areas devastated by war, where prices may rise fantastically. But a black market may spring up even in peacetime whenever a government places controls on buying and selhng. For instance, a bkck market may arise in meat, butter, or other commodities if their sale is limited in a planned economy. In many nations, exclusive government control of purchase and sale of foreign exchange and currencies induces illegal transactions despite drastic penalties.

A black market is not a place but a set of illicit practices. Typically, it exists alongside a legal market, and there are two sets of prices for the same general classes of commodities. Usually traders know the prices in both markets. A given buyer or seller - for example, a housewife or a butcher - may operate exclusively in a black market: the black market may be the only market for some commodities in some areas. Or he may operate only partially in a black market: a housewife may purchase a legal quantity of meat at a legal price and an additional quantity at an illegal price.

Usually the term "black market" is confined to illegal sales that are substantial and continuous, rather than sporadic.

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