| Black Markets | ||
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A black market refers to a market where illegal economic activities are carried out. For example, charging a higher rent for a building than the ceiling in the form of charges for locks, mailboxes, and other additional items. |
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The rigidity of the ceilings can define the rent levels of black markets. |
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If the ceiling is very loose, then the black market rents are close to the unregulated rent. | |
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If there is a strict price ceiling, then the black market rents are almost equal to/on par with the price that the consumers will be willing to pay. | |
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Taking the example of the building rent-as shown in the figure-if the rent is charged above $P2, it is illegal. At the rent $P2, the quantity demanded will remain same at Q1. And if the price rises more than $P4, then a small number of consumers (B) will be ready to pay such amount. The irritated renters may go for search activity, which is very costly. If they do not get the required result, they prefer black markets even though it is costly. And if the government finds this illegal activity, the traders will be penalized/imprisoned. |
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| These are the effects of price ceiling on the black markets. | ||