Question

What is a black market? Under what conditions does such a market emerge? How do the prices charged on the black market compare to the conditions that exist in the legal market?

Answer 1

Black market occurs when there is binding price ceiling or binding price floor is imposed in the market .due to price floor and price ceiling ,there are surplus and shortage in the market respectively.

So when ,there is a shortage or surplus in the legal market,then Black market occurs.

Usually if there is a shortage in the market or surplus,price adjustment lead to equilibrium.

But in case of price ceiling and floor ,there is no price adjustment allowed .

So as a result people willing to pay higher or sell at lower price black market.

In case of price ceiling ,the black market price is higher than legal market price.

In case of price floor,the black market price is lower than legal market price.