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‘Illegal trade (black economy) costs the State €860m in lost revenue annually’ - Leaving Cert Economics - Question c - 2013
Question c
‘Illegal trade (black economy) costs the State €860m in lost revenue annually’. (Sunday Independent, 28 October 2012). (i) State one example of an activity in Irela... show full transcript
Worked Solution & Example Answer:‘Illegal trade (black economy) costs the State €860m in lost revenue annually’ - Leaving Cert Economics - Question c - 2013
Step 1
Step 2
State and explain two reasons for the recent growth in Ireland’s ‘black economy’.
Answer
1: Reduced Disposable Incomes
People can’t afford to pay the legitimate prices for goods/services due to financial strain.
2: Increased VAT Rates
Higher VAT rates cause prices to increase, resulting in consumers seeking to avoid these costs by engaging in black market activities.
Step 3
Explain two economic effects which the growing ‘black economy’ may have on the Irish economy, other than lost government revenue.
Answer
1: Increased Government Expenditure
The government may have to increase spending on enforcement of laws to combat illegal activities in the black market.
2: Decline in Legitimate Business Activity
The growth of the black market can lead to fewer legitimate businesses as consumers turn to unregulated alternatives, negatively impacting overall economic health.