how does black market affects food security
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When a product is made illegal by the government, often times a black market will emerge for said product. But how does supply and demand change when goods shift from a legal to a black market?
A simple supply and demand graph can prove helpful in visualizing this scenario. Let's see how the black market affects a typical supply and demand graph, and what that means for consumers.
drop in supply means the upward sloping supply curve will shift to the left. Similarly, a drop in demand means the downward sloping demand curve will shift to the left.
Typically the supply side effects dominate the demand side ones when the government creates a black market. Meaning, the shift in the supply curve is larger than the shift in the demand curve. This is shown with the new dark blue demand curve and the new dark red supply curve in this graph.
Now look at the new point at which the new supply and demand curvesintersect. The shift in supply and demand causes the quantity consumed of the black market good to decrease, while the price rises. If the demand side effects dominate, there will be a drop in quantity consumed, but there will also see a corresponding drop in price. However, this does not typically happen in a black market. Instead, there is normally a rise in price.
The amount of the price change and the change in quantity consumed will depend on the magnitude of the shifts of the curve, as well as the plastic elasticity of demandand the price elasticity of demand.
A simple supply and demand graph can prove helpful in visualizing this scenario. Let's see how the black market affects a typical supply and demand graph, and what that means for consumers.
drop in supply means the upward sloping supply curve will shift to the left. Similarly, a drop in demand means the downward sloping demand curve will shift to the left.
Typically the supply side effects dominate the demand side ones when the government creates a black market. Meaning, the shift in the supply curve is larger than the shift in the demand curve. This is shown with the new dark blue demand curve and the new dark red supply curve in this graph.
Now look at the new point at which the new supply and demand curvesintersect. The shift in supply and demand causes the quantity consumed of the black market good to decrease, while the price rises. If the demand side effects dominate, there will be a drop in quantity consumed, but there will also see a corresponding drop in price. However, this does not typically happen in a black market. Instead, there is normally a rise in price.
The amount of the price change and the change in quantity consumed will depend on the magnitude of the shifts of the curve, as well as the plastic elasticity of demandand the price elasticity of demand.
trilodhar:
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