Chapter 1

Economics came from the word oikonomous which means one who manages a
household.

Economics is divided into two parts.

1. Microeconomics
2. Macroeconomics

Microeconomics:
Smallest economic unit - Human

Micro economic analysis focuses on how humans deal with their economic activities in
their day to day life.

It's also known as individual economic analysis.

Economic activity :

● any type of buy and sell

● Buy and sell will always happen parallelly . If one is buying something then The
other person is selling it.

So we can divide these individuals ( for simplicity) into two groups.

Producer: Creates goods or services (e.g., factories, farmers, businesses). Their

willingness and ability to offer products create supply.

Consumer: Buys and uses those goods or services.Their willingness and ability
to buy products create demand.

Microeconomics specifically studies how consumers and producers interact in

markets and how their decisions lead to market outcomes like prices, production
levels, and resource allocation.

MacroEconomics : Aggregate Economics

Analysis
This is more concerned about broader aspects, mainly whether the country is
developing or not. There Can be multiple parameters here like

1. GDP
2. Growth rate
3. Inflation
4. Unemployment rate etc

Inflation refers to the general increase in the prices of goods and services over time,
which leads to a decrease in the purchasing power of money.
inflation rate ⬆️ Country ⬇️

Unemployment ⬆️ country ⬇️

Growth rate ⬆️ country ⬆️

Fiscal year in Bangladesh : 1st july - 30th June

Like a household, an economy has many decisions. The two main concept is,

1. Scarcity : We have limited amount of resources

2. Unlimited wants : There are a lot of things we want.

Economics is the study of how societies,peoples and organizations manage its scarce
resources given that the people have unlimited wants.

10 principles of economics. [No need to

memorize, understand only]

a) How people make decisions [1- 4] [FOR MID]

1. People Face Trade-offs
2. The Cost of Something Is What You Give Up to Get It
3. Rational People Think at the Margin
4. People Respond to Incentives

b) How people interact [5-7]

5. Trade Can Make Everyone Better Off
6. Markets Are Usually a Good Way to Organize Economic Activity
7. Governments Can Sometimes Improve Market Outcomes

c) How the economy as a whole works [8-10]

8. A Country's Standard of Living Depends on Its Ability to Produce Goods
and Services
9. Prices Rise When the Government Prints Too Much Money
10. Society Faces a Short-Run Trade-off Between Inflation and
Unemployment

Keywords
Tradeoff: TO gain something of desire, we have to sacrifice something else of value
due to the lack of resources.[p1]

Healthcare budget ⬆️ Education budget ⬇️

Study ⬆️ gaming time ⬇️

price ⬇️ Customer ⬆️

Opportunity cost: The thing that we sacrificed during our trade off process is called
opportunity cost. [p2]

Example: I want a ps5 and also a gaming laptop. Since I don’t have enough money, I
chose to buy a gaming laptop. The tradeoff happened between the ps5 and gaming
laptop. Here we sacrificed ps5 in this process and hence it’s our opportunity cost.

To get the college degree the opportunity cost will be the tuition fees, the salary you
could have earned, times you could have spent with your family,business you could
have built during that time.

[P3 explanation]

Rational people: People who think logically & make decisions based on it.

Thinking at the Margin: This refers to making decisions based on small, incremental
changes. Instead of thinking about the big picture all at once, you consider the
additional costs and benefits of doing a little more or a little less of something. This
process can be called marginal analysis.

Marginal Benefit (MB): The benefit of doing something.

Marginal Cost (MC): The cost we have to give if we do that work.

If MB>MC Then rational people tend to do that work or choose that path.

If MB<MC then rational people tend to avoid it. [It’s called BREAK EVEN POINT ]

When MB=MC, then it's inconclusive and depends on people’s personal emotions.

Incentives: An incentive is something that motivates or encourages a person to act in

a certain way. It's like a little push or a reward that makes you want to do something.
[p4] . Can be positive ( doing something) or negative ( avoid something )

Example:
Introverted people tend to avoid talking to unknown people. But in a job, when there is
a commission for getting more clients, those same introverted people talk with more
people as they can be potential clients. Here, the bonus motivated them to be more
social. So we can call it an incentive.

If the government offers a tax break for businesses that invest in renewable energy,
companies will be more likely to invest in that sector because the incentive of saving
money on taxes encourages them to do so.

If consumers know that a store is offering a discount on a product, they are more likely
to purchase it due to the incentive of saving money.
Price ⬆️ Demand ⬇️ supply ⬆️ [negative incentive for the consumer but positive
for supplier]

Although the sale will decrease during this, the profit per product will surely be more
than before. So suppliers will take advantage here

==============================First 4 needed for

mid======================

p5 :Trade Can Make Everyone Better Off

Better off = Being in good condition in terms of wealth, resources, or satisfaction.

Trade = Exchange of goods and services

Export = Selling of domestic goods and services to the foreigners

Import = Buying of goods and services to the foreigners

The RMG sector is right now at the peak among exported goods. Shrimp, medicine are
also exported in large quantities.

p6: Markets Are Usually a Good Way to Organize Economic Activity

Market mainly refers to the market system. This system is highly dependent on
the economic system. There are three main kinds of economic systems.

1. Free market economy [capitalism] : Capitalism is an economic system

where people and businesses own things like money, land, and companies
instead of the government. In capitalism, businesses compete to make
money by selling goods and services.
- Prices of things are usually decided by supply and demand—how
much of something is available and how much people want it.
- The idea behind capitalism is that competition and private
ownership lead to better products, more choices, and innovation.
- capital = profit / money
- Most commonly seen in western countries
2. Centrally planned economy [socialism] :
- Socialism is an economic system where the government or the
community owns and controls major industries, resources, and
services instead of individuals or private businesses.
- The main goal of socialism is to reduce inequality and ensure that
everyone has access to basic needs like healthcare, education, and
housing.
- This got broken down due to many political reasons.
- Another reason is, no matter how hard a company / business
works, it will never be able to have a huge amount of capital by
themselves. In many countries, the top 10% of the rich can have
 more than 10% of the wealth. This type of unequal distribution is
not seen in socialism.
3. Mixed economy:

A mixed economy is a system that combines elements of both capitalism

and socialism. In this system, some industries and businesses are privately
owned, while others are controlled by the government. The idea is to balance
economic freedom with government intervention to reduce inequality and
provide essential services.

Key Features of a Mixed Economy:

1. Private and Public Ownership – Some businesses are run by individuals

for profit, while the government owns essential industries like healthcare,
transportation, or energy.
2. Government Regulation – The government sets rules to prevent
monopolies [একাধিকার], protect workers, and ensure fair competition.
3. Welfare Programs – The state may provide healthcare, education, and
unemployment benefits to help reduce poverty.
4. Market-Driven Economy – Prices and production are largely decided by
supply and demand, but the government can step in to control inflation or
stabilize the economy.

p7 : Governments Can Sometimes Improve Market Outcomes

In many circumstances, government intervention is required to ensure fair

environment for both the consumer and the producer. Some targets can be:

1. Protect the ownership of businesses.

2. To ensure competition in the market [one company shouldn’t dominate
the market]
3. One’s business should not hamper others [like causing pollution]

p8: A Country's Standard of Living Depends on Its Ability to Produce Goods and
Services[that other people want to buy]

Living standard: overall quality of life and economic well-being of people in a

country

It can depend on their income level, access to basic necessities like

healthcare,employment, environmental quality etc.

People want to move to developed countries like the USA , JAPAN, CANADA
because they have better living standards than us. This difference in living
standard comes mainly because of the difference of productivity of the people.
⚠️Factors of production

1. Land
2. Labor : Can be physical or mental
3. Capital [money,tools, equipment, and machinery]
4. Raw material.
5. Natural resource : Land contains natural resources.

productivity : Amount of goods & services produced by each unit of factors of

productions.

If one can produce more goods using the same or less amount of these factors,
then they have higher productivity.

Technology can greatly boost productivity. Countries like China, Vietnam,

Singapore have heavily invested in technology and as a result they have
become the developed version of themselves that we see today.

p9: Price rises when the government prints too much money.

1. Government Prints Too Much Money.

2. Money Supply Increases Rapidly but production rate is same.
3. More Money Chasing Same Amount of Goods & Services.
4. Increased demand for Goods & Services.
5. Prices Rise (Inflation Occurs).
6. Value of Money Decreases (Purchasing Power Drops).

p10: Society faces a short run tradeoff between inflation and

unemployment

1. Increase in Inflation

2. Higher Demand for Goods & Services

3. Businesses Earn More Revenue

4. Firms Expand & Hire More Workers

5. Unemployment Decreases

↓
6. Wages May Rise, Continuing the Cycle

This is the reason for inflation 🆙 unemployment 🔽

This is known as the phillips curve and mainly studied in macroeconomics.

Chapter 2
Circular Flow Model 🧿
Fundamental representation of economic activity among different sectors in
the economy.

Economy is divided into 4 sections.

1. Household / Consumer => Does consumption of goods & services.

2. Firm / Producer => Does the production of goods and services.
3. Government => System process , administrative unit [mainly for
macroeconomics]
4. Foreigners/ rest of the world => Interaction with the outer world

🧠Assumptions for the model

1. Economy is divided into 2 major sectors

a. Household / consumer
b. Firm / producer

The other 2 will be somehow inserted into these two.

2. Firms are engaged with the task of production of goods and services
while households are engaged with the task of consumption.
3. Households are the owner of factors of production. Some
factors[requirements] for production are:
a. Land : A place where the production process will take place.
Natural resources are also part of it.
b. Raw material : Resources that will be combined into something of
demand
c. Capital / equipment : Any human created resource used to
produce goods and services. Machineries are physical capitals
while knowledge and skills are human capitals. capital ⬆️
production capacity ⬆️
d. Labor / worker : Providing effort to produce goods or services.
Nurse taking care of patients, artist making paintings , mechanic
changing brakes etc.
We can think of these as INPUT and the OUTPUT will be the produced goods
and services.

Black Line = physical flow,

Blue line = nominal/monetary flow

Explanation

For Market of factors 🌆

Households have the factors of production. But the Firm is the producer.
Firm needs to buy the factors from the household.

Household sends factors of production to Firm.[Seller / Supply side /

Income ]

Firm pays households for the factors. [Buyer/Demand side / Expenditure]

For Market of goods and services 💎

Firms have produced the goods and services using the factors. Now the
household needs it.

Firm gives goods and services to households. [Seller/Supply side / income]

Households send the payment to the firm.[Buyer / demand side / expenditure]

As we can see, the buyer and seller have flipped for the markets.

For any kind of economic activity, we will need a market. For the first market ,
product was the factors of production while for the second market, the product
was the goods and services produced.
Production Possibility Frontier ( PPF)
The PPF is a graph that illustrates the maximum combinations of two goods or
services that can be produced by an economy with its available resources and
technology, assuming those resources are used efficiently.

● production can never be negative

● An economy produces 2 goods [Take these two for example]
○ Car
○ Computer

PPF is a graph that shows the various combinations of

output/product/commodity [car,computer] that the economy can possibly
produce given the available factors of production and the production
technology.

Production => factors of production + technology => output

An economy = available resources(Factors of production) + technology

Let's say we have the following data:

Car Computer

0 3000

600 2200

700 2000

1000 0

Here max car produced is 1000 and max computer produced is 3000.

Extreme production point: Represents where all the resources were used to
produce a single commodity.

In these points, one will have production of 0.

PPF generally has two kinds of shapes.

For our given data the shape is like this.

Place the one that you will be increasing on the horizontal and the one you will
be sacrificing on the the vertical

Vertical intercept = Max number of computers possible when car production is

0.

horizontal intercept = Max number of cards possible when computer production

is 0.

If the economy uses all the resources in car production,

maximum car production = 1000

Computer production = 0 [Horizontal intercept ]

If the economy uses all the resources in computer production,

maximum computer production = 3000

car production = 0 [Vertical intercept]

Two extreme production points are represented by HI and VI.

Economy can divide it’s resources between 2 commodities : Both car and
computer

Ex : Car : 600 , computer 2200 [point A]

Computer: 2000 , car: 700 [point B]

Comparing between point A and B ,

Car production ⬆️100 units, computer production ⬇️200 Units

🎰Efficient, Inefficient and not feasible production points

The term ON THE PPF means , as long as we are on the curve.

InEfficient production points: All production points inside the PPF curve are
inefficient production points. Because we still have potential to produce more
[PPF curve is our limit given the resources we have].
Here we have the potential to produce 800 cars when computer production is
300. But we are producing only 600. Here the potential was wasted and became
inefficient.

Efficient production points: Any combinations of car and computer on the ppf
represents efficient production points. Ex: point A and B of original graph.

Not feasible Production points: Any point that is outside our PPF.

Why? In the concept of trade off, we know that we have to sacrifice something
to get the other thing. Similarly here we have to sacrifice the production of
computers in order to increase the production of cars. PPF curve mainly shows
us the highest possible production for each production combination.

Getting out of this curve means we have broken the law of trade off.
Here we see that we are producing 300 computers and 1200 cars for this
combination. But this is not possible because we don’t have that many
resources.

Now,

Opportunity cost for AB point = slope of AB = 🔺y/🔺x = 🔺computer/🔺car =

200 / 100 = 2 .

So,The opportunity cost for each car is 2 computers

Here we are finding the opportunity cost of car and representing with computer
as unit.

If we needed to find the opportunity cost for each computer, we just reverse
the equation : 🔺x / 🔺y
For the first one, we will get constant opportunity cost [Even if it was
downwards]

For the Second one, we will get an increasing opportunity cost.

Example 2:

Beer pizza

0 10

1 9.5

2 8.6

3 7.3

5 0

Opportunity cost for all the production points:

AB = (10-9.5)/1 = 0.5

BC = (9.5-8.6)/2-1 = 0.9

CD = (8.6-7.3)/3-2 = 1.3

DE = (7.3 - 0 ) /2 = 3.65

Here we are sacrificing pizza for beer. To increase the production of beer we
are getting a decrease in the production of pizza.
If we look at the graph and our opportunity cost, we can see that at the
beginning the cost was low but after a certain period, we are getting much
higher opportunity cost.

Why?

Let's say we have 100 workers available

car = 0, computer =100

We are giving all the resources to computers. So a car is our opportunity cost.
We want to increase the production of cars now.

car = 10, computer = 90

Although we took some workers, there are still a significant number of workers
still available. So the production didn’t decrease much and opportunity cost was
low.

car = 20 , computer = 80

still we have plenty of workers at computer section

car = 70 , computer= 30

In this kind of situation, the number of workers working at the computer section
is significantly low. Hence the production will decrease rapidly and we see a
higher opportunity cost.

Flat part of the curve -> low OC and Good support available still

Steep part of the curve -> High OC and low support

Shift of the PPF

Change of PPF mainly happens when a change occurs in the production capacity of a
country.We can also say it’s the change in production power. This depends on two
things

1. Factors of production / available resource

2. Technology

Case 1 : Suppose there is a technological improvement in car production.

Here our resources are the same , but improved productivity. If we produced 1 car with
a certain unit of resources, now we are producing 2 cars with the same unit of
resources.

Due to the increase, we are now able to produce 2000 cars max.[Rightward shift]

Production possibility frontier enlarging means our production area/limit has

increased. Now we have the whole area inside the green line as our production limit.

If we experienced the opposite case, like our productivity getting decreased, the
vertical intercept would have remained the same but the horizontal intercept would
have encountered a left/inward shift.

Case 2: There is an increase in CSE graduates. [Now we have more resources /

manpower]

Since computer resources have increased and it’s in the Y axis, we would encounter an
upward shift.
Case 3: Increase of production / increase in technology [General increase, not just in a
single sector ]

In this case, the capacity of producing both cars and computers will increase.

The shift will be parallel to the previous line.

[Reverse case]
 Chapter 3

Gains from trade

Here we will deal with a simple economy that produces only 2 goods:

1. Meat => Produced by a cattle rancher named Frank

2. Potato => Produced by a potato farmer named Ruby

Prerequisite for any trade is positive gain on both sides.

Case 1:

Ruby produces only meat

Frank produces only potato

Trade would allow both of them to enjoy a greater variety of goods. So both will be
better off [an improvement in an individual's or a group's well-being].

Trade will happen here. Ruby will trade meat with potato of frank and vice versa.

Case 2:

specialization is one's area of work where he is very efficient and productive

Ruby =======> Meat : Good at producing [specialization]

=======>Potato: Not very good at producing. Land not fertile enough.

Frank =======> Meat : Not good at producing

=======>Potato: Good at producing [specialization]

So here trade will happen due to comparative advantage and the potential for both
parties to benefit through specialization. The trade will help me focus more on what
they are specialized in and ensure better production rate.

Case 3: What if both are better at producing each of the commodities?

Here Ruby and Frank both can produce meat and potato quite good but Ruby is
better than Frank in producing both the goods.

Our main concern is, if trade will happen here. If the trade will be mutually beneficial
for both of them
Given information:

1. Both of them have 8 hours per day. They have 3 options at this time.
a. Produce only potato
b. Produce only meat
c. Produce both meat and potato.
2. Only Time will be considered as an input
3. For Frank
a. 1 ounce potato takes 15 mins to produce. [1 ounce = 1 unit]
b. 1 ounce meat takes 60 minutes to produce.
4. For Ruby
a. 1 ounce potato takes 10 mins to produce
b. 1 ounce meat takes 20 mins to produce

Since everything is in minutes, our input will also be in minutes. 8 hours = 480 mins

Frank:
1. If produces only potato:

15 mins => 1 ounce potato

480 mins => 480 / 15 => 32 ounce potato

2. If produces only meat:

60 mins => 1 ounce meat

480 mins => 480/60 =>8 ounce meat

3. If produces both meat and potato:

we assume that the input is divided equally here.

So he will be able to produce 16 ounces of potato and 4 ounces of

meat.[Half input = Half output]

Point Meat Potato

A 8 0

B 4 16

C 0 32

calculating opportunity cost

AB => 🔺meat/🔺potato = 8-4/16-0 = 0.25 ounces of meat

BC => 🔺meat/🔺potato = 4-0/32-16 = 0.25 ounces of meat

Since opportunity cost is the same for every point, we can say that the PPF is a straight
line. So the PPF shape will be like this:

Try to keep the unit per cell same for both axis.Example, if you consider 5 units for each
cell in x axis, then also consider 5 units for each cell of y axis.

It will be mentioned in the question which good will be placed in which axis.

Ruby:
1 ounce meat = 20mins

1 ounce potato = 10 mins

1. Only meat:

20 mins = 1 ounce

480 mins = 24 ounce

2. only potato:

10 mins = 1 ounce

480 mins = 48 ounce

3. Both meat and potato:

12 ounces of meat and 24 ounces of potato.

 Point Meat Potato

A 24 0

B 12 24

C 0 48

AB => 🔺meat / 🔺potato = 24-12 /24 -0 = 0.5

BC => 🔺meat / 🔺potato = 12-0/48-24 = 0.5

Since opportunity cost is same everywhere, this ppf will also be a straight line.

Without trade PPF = Consumption possibility frontier.

In no trade situation => self sufficient frank and Ruby

=> each consumes exactly what they produce.

=> Consumption probability frontier

With out trade => PPF shows the combination of meat and potato that frank and ruby
each can produce and then consume.

There are 2 concepts that decide why we should go into hassle of trade:

1. ABsolute advantage
2. Comparative advantage

Absolute Advantage:
Used to compare the productivity of one person to that of another.

=> Producer that requires a smaller quantity of inputs to produce a good is said to have
an absolute advantage in producing that good.
productivity ⬆️ advantage ⬆️

Since our input is time,we will calculate with that.

Per unit meat

Ruby = 20 mins

Frank = 60 mins

Since 20 < 60, Ruby has had the advantage in meat production.

per unit potato

Ruby = 10mins

Frank = 15 mins

Since 15 < 20, Ruby has the advantage here also.

So , there will be no trade between Ruby and Frank.

Comparative advantage:
Compares the opportunity cost of production. If any producer has lower opportunity
cost in producing any commodity then it can be said that the producer has a
comparative advantage in that particular product.

Ruby:

Meat = del X / del Y = (24-12)/(24-0) = 0.5

So 1 unit meat ⬆️ 0.5 unit potato ⬇️

So the opportunity cost for meat is 0.5 unit of potato.

Potato = 1 unit potato ⬆️ 2 unit meat ⬆️

Frank :

Meat = del m / del = (8-4) / (16-0) = 1/ 4 = 0.25

So, 1 unit meat ⬆️ 0.25 unit potato ⬇️

The opportunity cost for meat is 0.25 units of potato.

Potato : 1 unit potato ⬆️ 4 unit meat ⬇️

Opportunity cost of

1 unit meat 1 unit potato

ruby: 0.5 potato Ruby: 2 meat ⚠️

Frank : 0.25 potato ⚠️ Frank : 4 meat

For meat, Frank has a lower opportunity cost for every unit of meat. Frank has a
comparative advantage in this case.Meat is specialization. For the meat market, Frank
is the producer and Ruby is the consumer.

For the potato market, Ruby has lower opportunity cost for every unit of potato. So ,
potato is the specialization for Ruby. For the potato market, Ruby is the producer and
Frank is the consumer.

So trade is happening at both the potato and meat market.

basic:

sell => seller => Export

buy => buyer => import

🔴Price of Trade

The Sale will only be done if the selling benefits both the parties. For that, the selling
price has to be more than the production cost. Consumers will only buy if the price of
that product is less than the production cost if he made it himself.

Meat

The opportunity cost was 0.25 and 0.5 potato. Frank will sell it only if the price is higher
than his production cost and Ruby will only buy it if the price is lower than her
production cost.

We can set the price as the average of the 2 => (0.25 + 0.5) /2 = 0.375

So the price is 0.375 unit of potato for each unit of Meat

Potato

Price = (2+4) /2 = 3 unit of potato

Chapter 4
 Demand And Supply

Demand -> Buyer/consumer (comes from)

Supply -> Producer / seller

Quantity of Supply agreed on a fixed price = Qs = Quantity supplied

Quantity of supply agreed on a fixed price = Qd = Quantity Demanded

Equilibrium price = PE = Price at which the consumer and producer has agreed.

Equilibrium Quantity = QE

Demand Curve

law of Demand = Price ⬆️ Qd ⬇️

= Price ⬇️ Qd ⬆️

Here the relationship is -ve. Demand curve will be downward sloping

Supply Curve

Law of supply : Price ⬆️ Qs ⬆️

= Price ⬇️ Qs ⬇️

HEre the relationship is +ve. So the Supply curve will be upward sloping.

Usual shapes are like this.

Question solve
a. Graph the demand and supply curves. What is the equilibrium price and quantity in
this market?

b. If the actual price in this market were above the equilibrium price, what would drive
the market toward the equilibrium?

c. If the actual price in this market were below the equilibrium price, what would drive
the market toward the equilibrium?

Keep the price at y axis always. First draw a Price vs Quantity Demanded Graph and
then draw a Price vs Quantity Supplied graph. [Try to make the graph as straight as
possible, if needed forcefully match it and make sure both the curves go through a
point]

a) Demand curve and supply curve for pizza intersect at price = 6 or Qc. So
equilibrium price = 6 and equilibrium quantity = 81.
b) When the price is not at equilibrium point, there are 2 cases possible

Demand > supply => Excess Demand in the market ; Shortage ; Qd > Qs

Demand < supply => Excess supply in the market ; Surplus ; Qd < Qs

Now we will take any point that is immediately up or down .

Assume we are working with Price = 7

Demand = 68

Supply = 98

Supply > Demand => Surplus => 98-68 = 30 for price 7$ .

We can mark the quantity 68 and quantity 98. The line joining these two is our
surplus. [If we had taken points below the equilibrium, we would call it shortage]

Since there is a surplus, we have to balance it. We balance it by pushing both the left
and right point towards the equilibrium.
We can only touch the price here as changing the price will push both points .

Demand needs to be increase by (81 - 68) = 13

and supply should be decreased by (98 - 81 ) = 17

[We have to do the calculation with the quantity of equilibrium point ]

Type 2

Qd = 500 - 20p

Qs = -100 + 10p

at equilibrium point,

Qd = Qs

=> 500 - 20p = -100 + 10p

=> p = 20

So our equilibrium price is 20.

Placing the price at any equation ,

Qd = 500 - 20p -> 500 - ( 20 * 20 ) -> 100

This is our equilibrium quantity.