Formal+and+Informal+Markets+(Parallel+or+Black+Markets)

Barriers to economic growth and/or development
Paan: Institutional and political factors: Formal and Informal Markets (Parallel or Black Markets)



Money is needed for the government to invest in the economy to develop the country (economic growth). Subsistence works are not recorded in the national income because there is no income gained nor received and the money does not go to the government. Thus, lowering the national income. However, subsistence works are options for people to be dependent and survive by themselves. Even though the emergence of black markets may hinder economic growth, black market is the solution for poor people who can not buy standard goods at their normal prices. The well-fare of people might actually increases or decreases depending on the quality of goods and the kind goods bought and sold in the black market.

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-tax incentives offered to attract increased foreign direct investment =====

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__Black market__ = market in which it disregards rules and regulations that formal market follows; most goods and services sold in the black market are usually illegal and are sold illegally
ex. guns sold without proper license and did not go through taxation

__Grey market__ = buying and selling legal goods or services but the channels used to distribute the products are unofficial or unauthorized
ex. buying cheap goods in a garage sell at a cheap price and re-selling it abroad through the internet

-black market's buying and selling are illegal (against the law --> dangerous business)
=﻿Effect of the Black Market= -supply sharply drops + demand drops (or remain at the same place) -quantity decreases while price increases
 * When a product turns illegal: ex. if marijuana is illegalized**

Supply sharply drops: because producers are forbidded to produce them due to the law. (fear)
However, there may still be some producers that still create the goods.

Demand drops: because consumers don't use illegal goods as they might be punished. (fear)
However, depending on the elasticity of the goods, the demand might drop or stay at the same location.

With supply curve sharply shifting to the left and demand curve shifting to the left, black market will emerge and sells illegal goods at higher price due to scarcity.
__Real life example: Emergence of Black Market in Spain__

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References: "Black Market Black Economy Grey Market Gray Market, © Stanley St Labs, January 29 2011 []"

"O. Wallace Edited by Niki Foster, What is The Black Market?, conjecture corporation, Last modified January 30 2011, January 31 2011 []"

"Mike Moffatt, The Effect of a Black Market Using Supply and Demand, ©2011 About.com, January 31 2011 []"