Definition of Black Market
A ‘black market’ is a sector of the economy where transactions occur without the knowledge of the government and usually involve the breaking of certain laws such as filing proper tax returns. Other terms may include
- Underground market
- Hidden economy
- Grey market
- Unreported markets
A black market can also refer to the selling of a particular good. For example, if price controls or quotas exist for a good, then usually a black market develops. An example is a ticket tout selling tickets far above face value.
The black market often involves cash transactions or digital currencies like bitcoin. It makes it harder for the authorities to track what is going on.
The size of the black market
The size of the black market varies from country to country. It depends on various factors such as:
- Economic development. Developing economies often have a bigger black market, and part of this is due to the existence of a barter economy which falls outside the remit of the government.
- A degree of police control and mafia organisation
Many former Soviet countries experienced a huge growth in the black market after the fall of Communism. Communist economies tended to be highly regulated, and so when the regulation fell away, it created a gap for new ‘entrepreneurs’ to meet basic supply and demand.