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A black market , underground economy or shadow economy , is a clandestine market or series of transactions that has some aspect of illegality or is characterized by some form of noncompliant behavior with an institutional set of rules. If the rule defines the set of goods and services whose production and distribution is prohibited by law, non-compliance with the rule constitutes a black market trade since the transaction itself is illegal. Parties engaging in the production or distribution of prohibited goods and services are members of the illegal economy. Examples include the drug trade, prostitution (where prohibited), illegal currency transactions and human trafficking. Violations of the tax code involving income tax evasion constitute membership in the unreported economy. Because tax evasion or participation in a black market activity is illegal, participants will attempt to hide their behavior from the government or regulatory authority. Cash usage is the preferred medium of e...

The literature on the black market has not established a common terminology and has instead offered many synonyms including: subterranean; hidden; grey; shadow; informal; clandestine; illegal; unobserved; unreported; unrecorded; second; parallel and black. There is no single underground economy; there are many. These underground economies are omnipresent, existing in market oriented as well as in centrally planned nations, be they developed or developing. Those engaged in underground activities circumvent, escape or are excluded from the institutional system of rules, rights, regulations and enforcement penalties that govern formal agents engaged in production and exchange. Different types of underground activities are distinguished according to the particular institutional rules that they violate. Four major underground economies can be identified: the illegal economy the unreported economy the unrecorded economy the informal economy The "illegal economy" consists of the ...

Goods and services acquired illegally and/or transacted for in an illegal manner may exchange above or below the price of legal market transactions: They may be cheaper than legal market prices. The supplier does not have to pay for production costs and/or taxes. This is usually the case in the underground economy. Criminals steal goods and sell them below the legal market price, but there is no receipt, guarantee, and so forth. When someone is hired to perform work and the client is unable to write off the expense (particularly common for work such as home renovations or cosmetological services), the client may be inclined to request a lower price (usually paid in cash) in exchange for foregoing a receipt, which enables the service provider to avoid reporting the income on his or her tax return. They may be more expensive than legal market prices. For example, the product is difficult to acquire or produce, dangerous to handle, is strictly rationed, or not easily available legally if...

No government, no global nonprofit, no multinational enterprise can seriously claim to be able to replace the 1.8 billion jobs created by the economic underground. In truth, the best hope for growth in most emerging economies lies in the shadows. — Global Bazaar , Scientific American Even when the underground market offers lower prices, consumers still have an incentive to buy on the legal market when possible, because: They may prefer legal suppliers, as they are easier to contact and can be held accountable for faults; In some jurisdictions, such as the United States, customers may be charged with a criminal offense if they knowingly participate in the black economy, even as a consumer; They may have a moral dislike of black marketing; In some jurisdictions (such as England and Wales), consumers found to be in possession of stolen goods will have them taken away if they are traced, even if they did not know they were stolen. Though they themselves will not usually face crimin...

Some examples of underground economic activities include: Sexual exploitation and forced labor edit Prostitution is illegal or highly regulated in many countries across the world. These places form a classic study of the underground economy, because of consistent high demand from customers, relatively high pay, but labor-intensive and low skilled work, which attracts a continual supply of workers. While prostitution exists in every country, studies show that it tends to flourish more in poorer countries, and in areas with large numbers of unattached men, such as around military bases. For instance, an empirical study showed that the supply of prostitutes rose abruptly in Denver and Minneapolis in 2008 when the Democratic and Republican National Conventions took place there. Prostitutes in the black market generally operate with some degree of secrecy, sometimes negotiating prices and activities through codewords and subtle gestures. In countries such as Germany or the Netherlands, wher...

People engaged in the black market usually run their business hidden under a front business that is legal. Often, certain types of illegal products are traded against one another, depending on the geographical location.

Wars edit Black markets flourish in most countries during wartime. States that are engaged in total war or other large-scale, extended wars often impose restrictions on home use of critical resources that are needed for the war effort, such as food, gasoline, rubber, metal, etc., typically through rationing. In most cases, a black market develops to supply rationed goods at exorbitant prices. The rationing and price controls enforced in many countries during World War II encouraged widespread black market activity. One source of black-market meat under wartime rationing was by farmers declaring fewer domestic animal births to the Ministry of Food than actually happened. Another in Britain was supplies from the US, intended only for use in US army bases on British land, but leaked into the local native British black market. For example, in the Parliament of the United Kingdom on February 17, 1945, members said that "the whole turkey production of East Anglia had gone to the black m...