Effect of the black market on the economy (Essay Sample)

Effect of the black market on the economy
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Effect of the black market on the economy
Black markets are all economic activities that are currently unregistered but contribute to the calculation of Gross National Product (GNP). The word black market is used to define economic activities that involve buying and selling of illegal goods and services. This term is used because the transactions are unlawful and are thus conducted in duck or out of sight or rule of law. This contributed to underground and shadow economies. Black-markets mainly deals with illegal products that are deemed by the legislature, which includes stolen goods, illicit drugs. It also involves products that are supplied illegally to avoid taxation and licensing such as cigarettes and guns.
The placement of limits and restrictions on the production and endowment of these products and services leads to the definition of black markets. Despite all the restrictions, black markets still exist in any known economy across the world. It would thus appear for the fact that development of black markets have been stimulated by price control, prohibition, and rationing. Activities in the black markets are hard to measure and identify because of their nature of operations. Black markets have greater impact on the economy of a country. These effects can either be positive of negative depending on the result of national product obtained. This paper focus on how black markets affect the economy.
One of the major effects of black markets is that they contribute to the competitive power in the economy. Black marked leads to the prevailing of numerous informal sectors in the economy. This is seen as optimal because it responds to the economic environmental demand for small-scale manufacturing and urban services. In this case, the black markets provide an entrepreneurial and dynamic spirit that contributes to greater competition in the economy. Black markets also contribute to the creation of markets that enhance entrepreneurship that boost financial resources in the economy. Many black markets have been created in almost all economies of the world creating a stiff competition. They have invaded most of the major business offering cheap goods to consumers.
Formal sectors in the economy face stiff competition from the black markets because goods are sold at relatively cheaper prices. This makes most of consumers purchase goods from the black markets leading to poor performance of the formal sectors. This is well explained by the law of demand that indicates that the lower the price the higher the demand. Consumers will always tend to lower their spending by purchasing goods and services at lower prices. Most of the goods in the black markets escape the imposition of tax making them cheaper compared to other goods in the economy.
Black markets have also increased competition on products that require licensing such as guns. Most people in the country end up purchasing guns from the black markets to avoid restrictions encountered during licensing. It has been evidenced that a lot of guns possessed by people in the United States are purchased illegally in the black markets. Companies dealing with guns face stiff competition from black markets because their products are also access at a lower price. Competition caused by black markets leads to underperformance of formal markets lowering the revenue in a country. Most of the formal markets end up making loses because many customers are diverted to black markets where similar goods are sold at a lower price.
Black markets are also involved in the creation of employments. Large part of the economy is made of black markets that employ many people. Various channels of trade are involved in the black market, which requires work force and human labor. This has led to increased number of job opportunities in a nation. Black markets are well defined informal sectors that deal with production, manufacture, processing, packaging, and distribution of products into the markets. Human labor is needed in all these channels thus contributing to employment of a large number of people. In this case, many people have secured jobs in black markets where they make their living.
A growing economy in the nation is defined by higher level of employment. Black markets have contributed to the growth of the economy due to the increased number of employments. Although many governments in nations around the globe are involved in the fight against these markets, it is evidenced that they have contributed to the sustainability of life and reduction of poverty. In the global economy, about 23 percent of employees work in the black markets. This indicates that lack markets have a positive impact in the economy because it has increased job opportunities to people. Higher number of employment in a nation leads to higher growth and development of the economy. Many people have been able to meet their needs by securing jobs in black markets. This boosts their purchasing power by reducing the poverty level.
Since black markets are informal, less qualified people cannot secure jobs in the formal sectors, in a country, are able to get the opportunity. This is very important in a nation because it helps in balancing nominal income among the households. It also contributes in bridging the gap between the rich and the poor. Many people without basic education end up becoming jobless in the formal economy leading to an increased level of poverty. In this case, black markets create opportunities for the less educated people in a nation. It is thus evidenced that black markets offers job opportunities to all regardless top their level of education. This is because most of their sectors such as distribution required human workforce.
Black markets are also involved in the provision of resource to official and formal economy. Resources are required to manufacture and process goods in a nation. Any company involved in the manufacture of goods and services aims at lowering their production cost and increasing their total revenue in order to increase profit margins. In this case, their main aim is to reduce the cost of their resources, which can be acquired in the black market. Most of the resources used in the manufacture of goods are easily obtained in the black markers at a lower price. Provision of resources in the formal sectors leads to growth and development of the economy. This is because sustainable economy is defined by the availability of resources used in the production of various goods and services.
Economy is also sustained by the black markets during times of weakness. In some cases, the economy might encounter deprivation of resources requires for its sustainability. Black markets form a solution to such a situation because they can easily access the products. This helps in the stabilization of the economy, which is highly affected by lack of the required resources. It is noted that resources such as oil is very insufficient in the world. This has contributed to the formation of cartels who sell the products in the black markets. Formal sectors in this industry sell their products at higher prices compared to the black market. This forces most of the companies to focus on these markets in order to decrease cost of production and increase generation of profits. Higher profits in companies contribute to the growth and development of the economy in a nation.
Black markets have also enhanced distribution of resources in the nation. This involves supply resources to every part of the nation at a lower price. Households in a nation are able to get counterfeit products in the black markets at a lower price. Some of the genuine products are very expensive making it impossible for most of the people in the nation to access them. Many people highly depend on counterfeit goods and products. This has enhanced equitable distribution of resources across a nation. This enhances growth of the economy in an even manner that suits everybody in a nation.
Black markets are also associated with negative impacts in the economy of a nation. In this case, these markets contribute to poor growth and development of a nation. The economy underperforms due to loss of revenue that accounts for the growth of the economy. Black markets cause the shrinking of the formal economy. This is because businesses in these markets are operated illegally without the supervision of the government. They operate in the shadow without following business laws set by the government. In this case, the revenue obtained in these markets is not accounted in the Gross National Product (GNP). This causes the shrinking of the formal economy. Actual value of the economy is not obtained because the businesses are operated in the underground.
Black markets also contribute to loss of taxes in the economy. Most of these markets operates illegally and thus evades taxation from the government. In addition, the businesses are not registered in the registrar of companies indicating that the government does not recognize them. It is, therefore, difficult for the government to collect taxes from businesses that operate in the black markets. Products in these markets are tax-free making traders to sell them at lower prices. The government does not, therefore, collect sufficient taxes to facilitate economic development. Most of the government projects in the economy are funded by taxes collected by organizations and other business entities.
Lack of adequate tax collection from black markets renders the government into debts. Operation of many illegal businesses in a nation leads to lower tax collection by the government. In this case, the government is faced with fund inadequacy to facilitate growth and development. It, therefore, engages in borrowing from the ...