Final answer:
The existence of substantial black markets is largely due to the heavy regulations in command economies, which create market inefficiencies leading to the formation of underground economies where goods can be traded outside of governmental control.
Step-by-step explanation:
The question focuses on explaining the reason for the existence of substantial black markets. Black markets, also known as underground economies, thrive in environments where the government heavily regulates economic activities. Command economies, where the government makes all decisions about what to produce and what prices to charge, are more likely to have significant black markets.
This is because such regulations can create shortages or excess demand, incentivizing the creation of markets outside of governmental control for goods that are in shortage or are illegal to sell. On the other hand, market-oriented economies with fewer regulations, seeking an even playing field, still govern critical aspects such as preventing fraud and theft to protect participants.
A practical approach to microeconomic policy involves understanding both the strengths and weaknesses of markets and government interventions rather than assuming one is always beneficial or harmful. In heavily regulated economies, the restrictions on legal markets often lead to the emergence of black markets where transactions can occur without official sanction.