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A red-light district is a neighborhood where prostitution is common. The term was first recorded in the United States around 1890, and derives from the practice of placing a red light in the window to indicate to customers the (often illegal) nature of the business. This is based on the biblical story of Rahab, a prostitute in Jericho who aided the spies of Joshua and identified her house with a red light.
Interestingly, one of the many terms used for a red-light district in Japanese is akasen (赤線), meaning "red-line district".