Whats the connection with Economics

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Whats the connection with Economics?
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Black Markets..

• Why pay a higher or lower price?
• Who sells on the black market?
• What is the role of the price mechanism?

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What black markets can you think of?
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Spot the fakes
Thirteen people have been arrested in connection
with what could be one of the biggest counterfeit
operations on London's transport system. Police
said the scam was thought to have penetrated at
least 10 of the current bus saver ticket
circulation. Bus saver tickets account for
about eight million bus passenger journeys a year
out of a total of 3.8 billion journeys.
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Rugby Ticket touts!

• More than 40,000 England fans are due to descend
  on Paris to sample the atmosphere of England's
  World Cup semi-final with France on Saturday.

• England's unexpected quarter-final victory over
  Australia meant a surge in last-minute bookings.
• The match is a sell-out but tickets are
  exchanging hands for up to 1,400.

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Why Black Market?

• The black market is the sector of economic
  activity in a jurisdiction involving illegal
  activities.
• Depending on the sense in which the term is used,
  this can primarily refer to illegally avoiding
  tax payments, to the profits of narcotic
  trafficking, or profits made from theft.
• It is so called because "black economy" or "black
  market" affairs are conducted outside the law,
  and so are necessarily conducted in the dark --
  if not literally, then metaphorically, out of
  sight of the law.

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Why do Black Markets exits?
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Government Intervention

• Restrictive Selling practices
• E.g. alcohol tobacco
• Can not be sold to under age consumers
• High tax rates
• E.g. alcohol, tobacco, fuel (red diesel)
• Can be brought in to the UK for personal
  consumption
• Banned products
• E.g. Narcotics and prostitution

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Market shortage

• Under estimation of demand
• Purposeful limited editions to attract attention
  or exclusivity.

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So what reasons are there for stadium ticket
prices to rise?

• Can not extend supply due to stadium size!
• Draw a D S diagram show an increase in D and
  see what happens to price!

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Consumer Surplus

• Why are some people still willing to pay a higher
  price?

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Consumer Surplus
As consumption increases, the marginal benefit
from extra units is assumed to decline diminishin
g marginal satisfaction Therefore
..willingness to pay for the product will
decline
Price (P)
Quantity Demanded (Qd)
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Demand and Consumer Surplus
The marginal benefit from extra units of ?? is
shown in the diagram this gives us the
consumers demand curve.
Price ()
Demand
Quantity Demanded (Qd)
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Demand and Consumer Surplus
Assume the current market price is 30 there are
15 consumers prepared to buy items at this price
Price ()
30
Market Price
Demand
Quantity Demanded (Qd)
15
15
Demand and Consumer Surplus
5 Consumers would be willing to pay 60 in fact
the consumer only has to pay 30.
Price ()
60
30
Market Price
Demand
Quantity Demanded (Qd)
5
15
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Demand and Consumer Surplus
Consumer surplus is the difference between what
the consumer is willing to pay and the price they
actually do pay
Price ()
60
30
Market Price
Demand
Quantity Demanded (Qd)
5
15
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Demand and Consumer Surplus
Price ()
60
45
30
Market Price
Demand
Quantity Demanded (Qd)
5
10
15
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Total Expenditure and Consumer Surplus
Total Spending price per unit X Quantity
consumed
Price per Pizza ()
60
45
30
Market Price
Demand
Quantity Demanded (Qd)
5
10
15
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Consumer Surplus at the Equilibrium Price
Price per Unit ()
Market Supply
Total willingness to pay - actual amount paid
20
Market Demand
Quantity
100
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Who sells black market goods?

• How can they make a profit?
• Why is it illegal?

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Ebay anyone???

• The eBay sellers. They come with all sorts of
  excuses -  'I broke my leg and can't attend so
  I'm selling the tickets', or 'I accidentally
  bought an extra ticket' - (and then added an
  extra 50 for their 'mistake').

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While official websites were selling tickets for
between 21 and 181
Whats the increase for these tickets?
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Official Manufacturers
None of this is illegal. However, buying at
discount prices and then selling on at a profit
can be deemed black market if you do not have
the manufacturer or retailers permission!

• End of season
• Over-estimated level of demand sell off quickly
  to other shops think TK Max
• Bulk purchase Supermarket power Levis v Asda
  where Asda sold Levi jeans for 20 rather than
  45.

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Producer Surplus

• What is it?

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Producer Surplus

• Producer surplus is a measure of producer
  welfare.
• It is measured as the difference between what
  producers are willing and able to supply a good
  for and the price they actually receive

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Showing Producer Surplus
Price per Unit ()
Price is 20 but firms would be willing to
supply some units at a lower price
Market Supply
20
Market Demand
Quantity
100
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Total Revenue (TR) Price (P) x Quantity
Supplied (Q)
Price per Unit ()
Total revenue 2000
Market Supply
20
Market Demand
Quantity
100
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Producer Surplus
Price per Unit ()
Producer Surplus
Market Supply
20
Market Demand
Quantity
100
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Total Economic Welfare (Consumer Producer
Surplus)
Price per Unit ()
Market Supply
Consumer Surplus
20
Producer Surplus
Market Demand
Quantity
100
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So why dont we all buy black Market goods?
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Reasons for not using a Black Market

• The consumer may feel that the black market
  supplier conducts business immorally.
• The consumer may -- justifiably -- trust legal
  suppliers more, as they are both easier to
  contact in case of faults in the product and
  easier to hold accountable
• In some countries, it is a criminal offence to
  handle stolen goods, a factor which will
  discourage buyers

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Your go..

• Worksheet to complete

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Pros Cons of Black Markets
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Homework.

• Revise for assessment next lesson.
• Key theory demand, supply, equilibrium Black
  Markets.
• You will have a MC paper a Data Response

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Black Market Notes

• What is a Black Market? ( examples)
• Why do Black Markets exist?

• Consumer Surplus
• Producer Surplus