Social Studies
But reducing
Black Markets
Introducing Markets
 Essential Questions
Do all markets function the same way around the world?
a) Markets are how people function; markets don’t function, people do.
We speak of the “functioning of markets” as a shorthand, a figure of
speech because abstracting human behavior to the behavior of a system is
useful, as long as we don’t forget that it is an abstraction and not a real
thing.
This is the same when we speak of “the roar of the crowd” even though
people roar, not crowds. It just takes too long to write “the noise of the
people in the crowd roaring at the same time”.
It is easier to write “the functioning of the market” than “what happens as
people interact with each other.” Markets are the interactions of people .
So, do people behave and interact the same way around the world?
Obviously not. Are the results the same? Yes they are: people serve each
other and, in the process, create wealth. But both wealth and service vary
by culture.
b) In economy-speak, “efficient markets” match supply with demand.
They clear at a price and quantity where buyers and sellers are satisfied.
This doesn’t mean they are happy - it just means that under present
conditions, while sellers might provide more at a higher price, buyers would
take less (and vice versa). So an efficient market tells everyone what that
good is currently “worth”, so they can make better choices about
consuming and producing it.
Unfortunately, the real world rarely provides the ideal conditions assumed
for efficient markets - including full access to information. The resulting “
market distortions” leave us less well off than we could be.
distortions will usually improve overall global results.
For a real, around-the-world example, consider the impact of cheap
transistor radios on agricultural markets beginning in the 1950s. After rural
Thai farmers learned what corn(maize) was worth on international markets
(via broadcasted commodity prices started years before I was there) they
made it a major export crop, impacting world supply. Producers I visited in
Southern Brazil were doing the same with soybeans during the 1970s.
So my experience from around the world is that when market participants
have better information, they make better production and consumption
decisions. Markets work when we let them.
o What (or who) determines the prices of goods and
services?
a)So hypothetically, if there were a free market, prices would be determined by
whatever the buyer and seller agree on. A primitive barter economy could be “free”
(though very inefficient.) However many eggs you can convince the guy to give you for
your fish, is the free market price of a fish at that moment.
Anywhere customers are desperate (like flood victims needing drinking water, or
critically injured car accident patients) they would naturally be gouged by the free
market, because their need is overwhelming. Capitalists see gouging as a natural
process of the “strong” rising to the top. Liberals consider it unethical to prey on people
in their moment of need, when we should be helping instead of exploiting them.
In a free market, the price for a commodity, or service is determined by the equilibrium
of Demand and Supply. The point at which the level of Demand, meets the Supply, is
called an equilibrium price. Any shifts to the left/right or up/down will force a new
equilibrium price, higher or lower than the previous price.
b) If there is more Demand, than Supply, the prices will go up, until new producers
enter the market, or the Supply levels rise to meet the demand. For e.g. iPhone when
was launched, was a unique product, with a touch-sensitive screen, and apps. A lot of
people wanted one, and the supply was limited by the production by Apple. So prices
were high. Eventually, Samsung entered the market with its own touch-enabled
phone, with apps, and concurrently, Apple produced more iPhones, so the Supply Very simply:
levels increased, meeting the demand, so the prices came down.
 Currency – a unit of account that is durable, portable, divisible, and
If there is less Demand, than Supply, the prices will fall, until the supply levels fall to interchangeable which serves as a medium of exchange.
the level of demand. For e.g. the current glut in the energy market. The supply of oil is
higher than the demand for it, thus price for crude is falling, as produces cut their  Commodity – a raw material in finite supply that is in demand for
production, the supply is reduced, while oil being cheap, consumers started to buy/use consumption or production.
more oil, increasing the demand. Currently, the equilibrium price is somewhere around
 Money – a currency that is a commodity.
$45/barrel.
The value of currency and money is determined as follows:
c)Prices should be determined by the market.
 Industrial Value = Supply and demand for asset/commodity
The answer is correct enough, but some elaboration is necessary to answer the
practical problem concerning the wisdom of government price control.  Investment Value = Supply and demand by investors

Let us begin on the elementary level and say that prices are determined by supply and  Value of Currency = Investment Value
demand. If the relative demand for a product increases, consumers will be willing to
pay more for it. Their competitive bids will both oblige them individually to pay more  Value of Money = Industrial Value + Investment Value
for it and enable producers to get more for it. This will raise the profit margins of the
b) Money has its value because it is legal tender.
producers of that product. This, in turn, will tend to attract more firms into the
manufacture of that product, and induce existing firms to invest more capital into Legal Tender: Legal tender is a medium of payment recognized by a legal
making it. The increased production will tend to reduce the price of the product again, system to be valid for meeting a financial obligation. Paper currency and coins are
and to reduce the profit margin in making it. The increased investment in new manu- common forms of legal tender in many countries. Legal tender is variously defined
facturing equipment may lower the cost of production. Or — particularly if we are in different jurisdictions.
concerned with some extractive industry such as petroleum, gold, silver, or copper —
the increased demand and output may raise the cost of production. In any case, the Earlier there was no legal tender and trades used to happen through barter
price will have a definite effect on demand, output, and cost of production just as these system. Barter system is when commodities are exchanged for commodities. But
in turn will affect price. All four — demand, supply, cost, and price — are interrelated. barter system has its own disadvantages such as
A change in one will bring changes in the others.
 Double Coincidence of Wants
What is money – and where do the different types of money derive their
 Absence of Common Measure of Value
value?
 Lack of Divisibility
a) Money is an asset, a tool, that allows you to
transport value through time in exchange for  The Problem of Storing Wealth
goods and services. Money cannot be the answer
for the greed, fear, nor hate of a host, the person.  Difficulty of Deferred Payments
Just like a shovel is only a tool, it can be used for
 Problem of Transportation
both good as well as evil.
 Therefore money was recognized as legal tender to overcome these problems.
The promissory clause printed on the banknotes i.e., "I promise to pay the bearer
the sum of Rupees …is a statement which means that the banknote is a legal
tender for the specified amount.
Fiat currency - is any money declared by a government to be legal tender. Money
that has value only because of government regulation or law, not backed by
anything.
b) Several ways are currently used by pretty much every liberal administration
(which covers most of the world’s governments).
1. For products imported, they can impose import duties (tariffs).
2. For products considered “harmful to society” such as hallucinogenic drugs,
alcohol and tobacco, they can totally ban their legal sale and increase costs
for sellers with threats of seizure or jail sentences, or impose specific taxes
enforced with a stamp requirement, etc.

Paper money whose value as a currency depends on the management practices 3. For medicinal products, they can impose severe testing requirements which
of the central bank (Federal Reserve). contribute substantially to product cost.

https://mises.org/library/how-does-money-acquire-its-value
All currencies are worth what you can buy with them (their Purchasing Power). If
you can’t buy anything with a thing that claims to be a currency, it’s a worthless
currency.
4. For food products, they can require hygienic processing environments and
continuous or random independent inspections by government employees.
5. For any product sold by weight, volume etc. they can require independent
certification of the measuring devices used in exchanges.

To what degree can governments control prices or quantities of goods 6. For consumer products which have a capability to injure (autos, power tools,
and services exchanged? etc.) they may impose design and maintenance requirements to mitigate the
risks for users and others.
a) Governments have been trying to set maximum or minimum prices since ancient
times. The Old Testament prohibited interest on loans to fellow Israelites; medieval 7. For products and processes which may harm people’s health or their
governments fixed the maximum price of bread; and in recent years, governments in environment, they can impose costly mitigation processes to reduce the
the United States have fixed the price of gasoline, the rent on apartments in New York harm.
City, and the wage of unskilled labor, to name a few. At times, governments go
8. A government may also add costs to products with various levels of taxation
beyond fixing specific prices and try to control the general level of prices, as was done
on corporations profits, on dividends passed by corporations on to
in the United States during both world wars and the Korean War, and by the Nixon
shareholders, and on other types of business organizations and assets and
administration from 1971 to 1973.
raw materials used in production of goods.
The appeal of price controls is understandable. Even though they fail to protect many
No doubt others I haven’t thought of. That pretty much covers the territory for accepted
consumers and hurt others, controls hold out the promise of protecting groups that are
liberal philosophy. Of course, less liberal regimes may impose any arbitrary fees and
particularly hard-pressed to meet price increases. Thus, the prohibition against
duties they may choose, for any reason they can think of.
usury—charging high interest on loans—was intended to protect someone forced to
borrow out of desperation; the maximum price for bread was supposed to protect the
poor, who depended on bread to survive; and rent controls were supposed to protect
those who were renting when the demand for apartments exceeded the supply, and
landlords were preparing to “gouge” their tenants.
 Key Terms to Learn
o Supply- to give, sell, or make available something that is
wanted or needed by somebody or something|
o demand- a clear and firm request that is difficult to ignore
or deny |
o deadweight loss- A deadweight loss is a cost to society
created by market inefficiency. Mainly used in economics,
deadweight loss can be applied to any deficiency caused
by an inefficient allocation of resources.|
o regulation-an official rule, law, or order stating what may
or may not be done or how something must be done
o perfect competition-Pure or perfect competition is a
theoretical market structure in which a number of criteria
such as perfect information and resource mobility are met |
imperfect competition | monopoly
o taxes-an amount of money levied by a government on its
citizens and used to run the government, the country, a
state, a county, or a municipality. a strain or heavy
demand|
o tariffs- a duty charged by a government on imported or
exported goods | embargoes |d
o sanctions- a law or rule that leads to a penalty being
imposed when it is disobeyed. official permission or
approval for a course of action |
o arbitrage-the simultaneous buying and selling of the same
negotiable financial instruments or commodities in different
markets in order to make an immediate profit without risk
o bazaar- a street market in North Africa or southwestern
Asia. A sale of goods to raise money for charity, often held
outdoors|
o souk-an open-air market in North Africa or Southwest Asia
|
o exchange- to give something and receive something
different in return |
o swap meets- is a place where vendors come to sell their
goods | boot sales- an event in a public place where
people sell their unwanted possessions, often from the
backs of their cars
o stock market - The stock market refers to the collection
of markets and exchanges where the issuing and trading
of equities (stocks of publicly held companies), bonds and
other sorts of securities takes place, either through
formal exchanges or over-the-counter markets.| futures
market- An auction market in which participants buy and
sell commodity/future contracts for delivery on a
specified future date | trade agreement
o laissez-faire- the policy of leaving things to take their own
course, without interfering. |
o optimal functionality- practical work
in an optimal and most desirable way
Contracts: Formalizing Exchanges
 Essential Questions
o Where do contracts derive their authority?
o How do contracts vary between countries?
o Do all contracts imply a transaction of some sort?
o How are contracts negotiated? Be sure to explore the
basics of negotiation.
 o Does every contract have an offer and acceptance? If so,
does an offer need to be explicitly accepted for the contract
to be binding?
o Are offers on the market contractual obligations?
 Key Terms to Research (Examples)
o Formation- the process by which something develops or
takes a particular shape |
o offer - to attempt to give somebody something that may be
taken or refused, usually something desirable| acceptance |
agreement
o rights- accurate, or consistent with the facts or general
belief | liabilities- legal responsibility for something,
especially costs or damages|
o breach - a failure to obey, keep, or preserve something
such as a law, trust, or promise|
o estoppel- a legal rule that prevents somebody from
stating a position inconsistent with one previously stated,
especially when the earlier representation has been relied
upon by others
o duty of care- duty of care is a legal obligation which is
imposed on an individual requiring adherence to a
standard of reasonable care while performing any acts that
could foreseeably harm others. It is the first element that
must be established to proceed with an action in
negligence. |
o condition- a general state or mode of existence,
especially one characterized by hardship or suffering. the
particular state of repair or ability to function of an object or
piece of equipment |
o consideration- careful thought or deliberation |
o capacity- a measure of the amount that can be held or
contained by something
o terms (implied vs. express)- 1) Express terms: these are
laid down by the parties themselves; 2) Implied terms:
these are read into the contract by the court on the basis of
the nature of the agreement and the parties' apparent
intentions, or on the basis of law on certain types of
contract.
o | misrepresentation- to give an inaccurate or deliberately
false account of the nature of somebody or something |
duress
o Collateral- property or goods used as security against a
loan and forfeited if the loan is not repaid |
o quid pro quo- a favour or advantage granted in return for
something. |
o caveat emptor- the principle that the buyer alone is
responsible for checking the quality and suitability of goods
before a purchase is made. |
o force majeure- unforeseeable circumstances that prevent
someone from fulfilling a contract
o smart contracts- A smart contract is a computer protocol
intended to digitally facilitate, verify, or enforce the
negotiation or performance of a contract. Smart
contracts allow the performance of credible transactions
without third parties. These transactions are trackable and
irreversible. |
o oral contract- A type of business agreement that is
spoken, not memorialized in writing. Although it can be
difficult to prove the terms of an oral contract in the event
of a breach, this type of contract is legally binding. |
 o written contract - A written contract is an agreement
made on a printed document that has been signed by both
the lender and the borrower. Written contracts are legally
binding and easier to enforce than oral contracts |
adhesion
o legal regulation - The act of regulating or the state of
being regulated. A principle, rule, or law designed to control
or govern conduct. A governmental order having the force
of law. Also called executive order . Embryology The
capacity of an embryo to continue normal development
following injury to or alteration of a structure.
o | statutory regulation- When a financial market or
industry is controlled by a government organization, such
as the Securities and Exchange Commission in the US,
rather than being allowed to control itself |
o Formalities- the rigid observance of convention or
etiquette. |
o Remedies- set right (an undesirable situation).
o freedom of contract- Freedom of contract is
the freedom of private or public individuals and groups (of
any legal entity) to form contracts without government
restrictions. This is opposed to government restrictions
such as minimum wage, competition law, or price fixing.
o | sanctity of contract- Sanctity Of Contract is a general
idea that once parties duly enter into a contract, they must
honor their obligations under that contract. |
reasonableness- sensible and capable of making rational
judgments |
o Negligence- the condition or quality of being negligent
Black Markets
 Essential Questions
What makes black markets necessary?
What distinguishes a black market from other kinds of markets—do they function
differently?
Are black markets better suited for the offline or online worlds?
What kinds of goods and services are traded on black markets?
Is there a difference between a black market and an informal market?
Do governments benefit more from eliminating black markets or from regulating them?
Is the new popularity of cryptocurrencies in part of a function of their usefulness on the
black market?
Does the term ‘black market’ refer to a specific marketplace in any given country, or
can there be many black markets even in the same place?
Are there contracts in the black market? If so, are they legally enforceable, and who
should be responsible for enforcing them?
Does anyone regulate black markets?
Are there any countries in which black markets are formally endorsed by the
authorities?
 Key Terms to Learn (Examples)
o underground economy- The underground
economy refers to illegal economic activity. Transactions
in the underground economy are illegal either because
the good or service being traded is itself illegal or because
an otherwise licit transaction does not comply with
government reporting requirements. |
o shadow economy- illicit economic activity existing
alongside a country's official economy, e.g. black market
transactions and undeclared work. | informal economy |
unreported economy
 o black market- an illegal traffic or trade in officially keyboard instrument producing sounds at different volumes
controlled or scarce commodities. | using compressed air passed through pipes |

o grey market- an unofficial market in goods that have not o Gold | a large musical keyboard instrument producing
been obtained from an official supplier. | sounds at different volumes using compressed air passed
through pipes
o white market- The white market, is the legal, official,
authorized, or intended market for goods and services. o Art - the creation of beautiful or thought-provoking works,
e.g. in painting, music, or writing
o import cycle
o Endangered Animals - to expose somebody or something
o | fluid supply | compounding crime | commission-free to danger
o Counterfeiting- made in exact imitation of something o Oil |
valuable with the intention to deceive or defraud. |
smuggling | black money | money laundering o Cigarettes |

o price ceilings- Price ceiling is a situation when o Slave Trade |

the price charged is more than or less than the
equilibrium price determined by market forces of demand o Housing- houses and other buildings where people live,
and supply. It has been found that higherprice ceilings are considered collectively
ineffective. |
o Currency |
o market failure- Market failure. An economic term that o Weapons | Medicine
encompasses a situation where, in any given market, the
quantity of a product demanded by consumers does not o Silk Road 1.0 – 3.1 | Darknet | Acropolis
equate to the quantity supplied by suppliers. |
Cryptocurrency
o underground | - separate from a prevailing social or
artistic environment, and often exercising a subversive  Introductory Questions to Answer
influence
o What is a cryptocurrency, and can a cryptocurrency be
o contraband- goods that are illegally imported or exported, considered a form of money?
e.g. goods that evade duty or are prohibited by law from
o What does it mean for a currency to be decentralized and
being taken into or out of a country.
unregulated?
 Black Markets to Explore (Examples)
o Who controls cryptocurrencies?
o Organs - a complete and independent part of a plant or
o Why are people skeptical of cryptocurrencies?
animal that has a specific function. a large musical
 o What makes one cryptocurrency different to another?
o Why is Bitcoin so volatile? What determines its value?
o What kinds of transactions would a cryptocurrency make
possible (or easier) that a normal currency might not?
o Could goods be valued in cryptocurrencies?
o Do cryptocurrencies weaken governments?
 Key Terms to Explore (Examples)
o medium of exchange - A medium of exchange is an
intermediary instrument used to facilitate the sale,
purchase or trade of goods between parties. |
o store of value - A store of value is the function of an asset
that can be saved, retrieved and exchanged at a later time,
and be predictably useful when retrieved.
o | unit of account- A unit of account in economics is a
nominal monetary unit of measure or currency used to
represent the real value (or cost) of any economic item; i.e.
goods, services, assets, liabilities, income, expenses. It is
one of three well-known functions of money. It lends
meaning to profits, losses, liability, or assets
o Blockchain ledger - A blockchain, originally block chain,
is a continuously growing list of records, called blocks,
which are linked and secured using cryptography.
... Blockchain was invented by Satoshi Nakamoto in 2008
for use in the cryptocurrency bitcoin, as its public
transaction ledger |
o decentralized- transfer (authority) from central to local
government. |
o mining- obtain units of (a cryptocurrency) by running a
computer process to solve specific mathematical problems.
o hard forks- A permanent divergence in the block chain,
commonly occurs when non-upgraded nodes can’t
validate blocks created by upgraded nodes that follow
newer consensus rules.
o soft forks - Soft fork (a temporary divergence in the block
chain caused by non-upgraded nodes not following
new consensus rules)
o | wallets- a pocket-sized flat folding case for holding money
and plastic cards. |
o private keys - a cryptographic key that can be obtained
and used by anyone to encrypt messages intended for a
particular recipient, such that the encrypted messages can
be deciphered only by using a second key that is known
only to the recipient (the private key ).
o Volatility- liability to change rapidly and unpredictably,
especially for the worse.
 Example Cryptocurrencies to Research
o Bitcoin- a type of digital currency in which encryption
techniques are used to regulate the generation of units of
currency and verify the transfer of funds, operating
independently of a central bank. |
o Bitcoin Cash- Bitcoin cash is a cryptocurrency is a fork
of Bitcoin Classic that was created in August 2017. Bitcoin
Cash increases the size of blocks, allowing more
transactions to be processed. |
o Ethereum- Ethereum is an open-source, public,
blockchain-based distributed computing platform and
operating system featuring smart contract (scripting)
functionality. |
o Ripple- Ripple is a real-time gross settlement system
(RTGS), currency exchange and remittance network
 by Ripple. Also called the Ripple Transaction Protocol
(RTXP) or Ripple protocol, it is built upon a distributed
open source Internet protocol, consensus ledger and native
cryptocurrency called XRP (ripples).
o Stellar- Stellar is an open-source protocol for value
exchange founded in early 2014 by Jed McCaleb (creator
of eDonkey) and Joyce Kim.
o Dogecoin- Dogecoin is a peer-to-peer open source
cryptocurrency and falls under the category of altcoins.
Launched in December 2013 with a Shibu Inus (Japanese
dog) as its logo, Dogecoin looked casual in its approach
but is gaining wide acceptance for online transactions. It is
a decentralized virtual currency and uses peer-to-peer
technology to carry out its operations. Dogecoin is scrypt
based (i.e. based on a password key) and enables fast
payments to anyone, anywhere across the globe.
o to have their own?
Questions for Further Exploration
 Is it too easy to create a cryptocurrency? Consider the case of doge,
a cryptocurrency originally intended as a joke. Does its success
point at any problems with the market for cyptocurrencies more
broadly?
 Consider the recent emergence of a widespread black market in
Venezuela. Discuss with your team: should consumers be punished
for participating in such markets? What drives their popularity?
 Learn about the effort in Cuba to normalize elements of its
widespread black markets—including granting self-employed
individuals official licenses to sell pirated movies. What is motivating
the government to try to regulate its black market rather than to
outlaw it?
 In cities and countries where Uber operates (or has operated)
without official permission, can it be seen as a black market service?
 Consider the emergence of cryptocurrency mining as an
entrepreneurial opportunity in the developing world, including for this
individual in Nairobi. Discuss with your team: could cryptocurrency
help level the global playing field? Or is it wishful thinking to imagine
it could provide sufficient opportunities to help lift people out of
poverty around the world?
 In what ways is the “grey market” like and unlike a traditional black
market? Do different factors motivate their creation? Discuss with
your team: would you be willing to buy something on the gray
market that you would not be willing to buy on the black market?
 Move over, Bitcoin: more and more nations are announcing their
own cryptocurrencies, including Kazakhstan (the CryptoTenge) and
Venezuela (the Petro). Discuss with your team: can so many
cryptocurrencies successfully coexist, and why might nations want
 Discuss with your team: is a contract the best way to form a binding
agreement between two parties? If you were to sign a contract with
your parents, what would it look like? How about with your
teammates?
 Read Chapter 2 of this book on deal-making by a well-known
American political celebrity, then discuss with your team: does this
chapter contain good advice? With what aspects of it, if any, do you
disagree? Be sure to share with your teammates the last time you
were involved in making a deal of your own, even on a very small
scale; would you have approached it any differently after reading
this chapter?
 As of 2016, pangolins were the most illegally trafficked animal in the
world. Learn about the pangolin’s situation, then research other
illegally trafficked animals. What do they have in common, and who,
if anyone, should be responsible for protecting them?
 Read about the kidnapping of Bitcoin exchange manager Pavel
Lerner. What motivated his kidnapping, and how was he freed? Are
cryptocurrencies and criminal behavior too closely linked for
cryptocurrencies ever to become a safe medium of exchange?
 Look into the emergence of Bitcoin ATMs around the world—do they
make sense for an online currency? Why might stores
and restaurants be motivated to install Bitcoin ATMs, and do these
reasons make sense—or are they just part of a passing craze?
 Satoshi Nakamoto wrote the original “white paper” that helped
launch Bitcoin and the entire cryptocurrency movement—but no one
knows who Satoshi Nakamoto really was. Discuss with your team:
why might this individual want to remain unknown, and how
important is it that we determine who he was?
sure to research what goods are most commonly counterfeited in
the global marketplace.
 Consider the Silk Road—not the trade route which once linked
Europe and Asia, but an online marketplace for black market
transactions that went through several incarnations and spawned
multiple imitators and descendants. Discuss with your team: are
such marketplaces inevitable? Do they pose a lasting challenge to
government control of economic transactions? If you had to design
your own online black market, what it would look like?

 Some products on the black market might surprise you—for

instance, the underground trade in manuka honey. What drives its
presence in the black market, and what other unusual goods can
you think of that might be similarly valued or illegally exchanged?

 Investigate the impact of cryptocurrencies on Japan’s GDP. Should

other countries learn something from the example of Japan? Is
national revenue generated through cryptocurrencies as legitimate
as that generated through more traditional means of exchange?

 Would “Torrenting” copyrighted movies or television shows be

considered a black market activity, or does money need to be
exchanged in a transaction for it to be counted as such?

 Does the creation of special economic zones—most famously, cities

such as Shenzhen in China, though the practice is now common
around the world—facilitate black market activity? Or do they
diminish it?

 Interwoven black markets are markets for counterfeit goods—

whether Rolex watches or, in Kiev, Big Macs. Discuss with your
team: would you be willing to buy counterfeit goods that are as good
as the original? What if they are not as good, but much cheaper? Be