Chapter 19.4, Problem 5R

To determine

To explain: The reason for black market has continued to thrive in China.

Explanation of Solution

Rule of law: Rule of law states that law should be applicable to all equally and that the law is considered supreme. The countries which shift from non-capitalist to capitalist face problem in the establishment of rule of law.

China is moving from a non-capitalist economy to a capitalist economy. In this process, problems of providing specific property rights arise and due to this problem corruption comes forward. In this situation, lawlessness and unpredictability also exist. As the resources are still controlled by officials of the army and government, taking bribes is common.

In all these prevalent factors, business is influenced, and hence black markets continue to thrive. Even if the government comes to know about the black markets it let them run as the notion of private property rights will take time to be accepted.