In some developing countries and in some former Communist countries, people exchange their domestic currencies for foreign currencies such as the dollar in black markets. Why would this practice go on?
What will be an ideal response?
The country must have some restrictions on currency exchange. Some countries have made it illegal to exchange the domestic currency for dollars beyond some minimum amount while others set official exchange rates. If the official exchange rate differs from the "market" exchange rate, it is likely black markets will form.
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Economists generally favor the use of tradable emission allowances to reduce pollution. However, the use of these allowances has been criticized by some environmentalists. Which of the following describes this criticism?
A) Some environmentalists believe that Pigovian taxes are a more efficient way to reduce pollution. B) Some environmentalists oppose allowances on legal grounds; they believe the use of allowances is unconstitutional. C) Some environmentalists believe that the price of allowances is often too high for consumers to afford. D) Some environmentalists believe the allowances give firms a license to pollute.
Buying a product in one market and reselling it in another market at a higher price is referred to as
A) arbitrage. B) purchasing power parity. C) crowding in. D) barter.