Table of content

1. Definition and branches 1

2. Nature and scope 7
3. Law of economics 10
4. Positive and Normative 12
5. Some basic economics concept 13
6. Economics and other related topic 18
7. Different economic system 20
Introduction

Economics is the social science that studies firms, households, price, wage, income, industry,
and commodity either particularly or in aggregate. Economics deals with basically two forces
i.e. demand and supply where consumers deal with demand and producers deal with supply.
The place where consumer and supplier interact is called Market.

Definitions of Economics

Adam Smith (1776) defined “economics as the science that enquires into nature and causes of
the wealth of nation.”

Alfred Marshall (1890) defined “economics as the study of mankind in the ordinary business
of life. It inquires how a man earns income and how he uses it. Thus, it is on one side, the
study of wealth and on another side, the most important part, the study of welfare.”
Branches of Economics

1. Microeconomics

1.1. Meaning

Microeconomics is the branch of economics that deals with an individual unit of an economy
before the existence of macroeconomics. Economics was predominantly called as
microeconomics though macro-views exist before John Maynard Keynes (1936).

Microeconomics is popularly known as price theory or slicing theory. Microeconomics is

called price theory because all the variables studied under microeconomics are directly or
indirectly studied in relation to price. In other words, microeconomics is primarily concerned
with determination of all prices such as price of products, factor prices, price and output
determination in different markets such as monopoly, perfect competition, monopsony,
oligopoly, and so on. Microeconomics is also called slicing theory because microeconomics
splits up the entire economy into smaller parts to carry out the intensive study, such as
individual consumer, individual market and so on.

According to K.E. Boulding, “Microeconomics is the study of particular firm, particular

household, individual price, individual wage, individual income, individual industry and
particular commodity.”

1.2. Agents of Microeconomics

1.2.1. A consumer

A person who possess resources and deals with demand is called consumer. Microeconomics,
as deals with individual unit of economy, deals with individual consumer. Microeconomics
deals with rational consumer. Rational consumer is the consumer who makes prudent and
logical decisions that provide him or her with the highest amount of personal utility. A
rational consumer always scrutinizes all the available alternatives and chosen the best
alternative that maximizes his or her utility. A rational consumer is guided by an objective to
maximize satisfaction by purchasing the commodity in least possible price. A rational
consumer always interacts with a producer.

Note: A consumer must be real, normal, and social means that economics deals with
realperson not with fictitious one, economics always deals with normal person not with
lunatic or mentally unsound person, and economics studies one who lives in society.

1.2.2. A producer

A person or a firm who possess goods and services and deals with supply is known as
producer. Microeconomics, as deals with single unit of an economy, deals with individual
producer. Microeconomics always deals with rational producer. A rational producer is one
who always tries to maximize his or her profit, that is, a rational producer is guided by an
objective of profit maximization. The global rationality of the producer is to maximize profit.
Thus, the producer wants to sell the product at the highest price that he or she can charge.

1.2.3. Market

Market is the place where consumer and producer interacts with each other. It is the place
where demand and supply forces interact with each other. Microeconomics deals with that
type of market where only one specific goods or services are sold and purchased such as
share market. Hence, microeconomics is primarily based on partial equilibrium approach or
Marshallian approach which considers only a part of the market, ceteris paribus, to attain
equilibrium (Koutsoyiannis, 1975).

1.2.4. A product

A product is the idea, concept, commodity, services and so on that has value and can be
traded in the market at specific price. Microeconomics deals with particular product and
analyzes the only one product’s sales, profit, cost, and so on. Hence, microeconomics deals
with only one product and studies each and every segment of that product.

Therefore, microeconomics is called slicing theory as it splits up the entire economy into
individual unit and make a minute study of that individual unit.

2. Macroeconomics
Macroeconomics is the branch of economics that deals with aggregate firm, household,
commodity and so on and studies economy as a whole. The concept of macroeconomics was
propounded by John Maynard Keynes in 1936 in his book “The General theory of employment,
interest and money”. The introduction of macroeconomics as a distinct branch of economics
has been considered as a milestone in economic evolution.

According to KE Boulding, “Macroeconomics is the study of aggregate and overall of system.”

Macroeconomics is also known as income theory because macroeconomics predominantly

studies other variables with respect to level of output or national income. Macroeconomics is
also called lump-sum method or theory of aggregates because the macroeconomics views
every economic unit of an economy in a lump-sum or aggregate measure such as aggregate
demand, aggregate supply and so on. It does not study individual unit such as a consumer, a
producer, rather studies aggregate demand by consumers and aggregate supply by
producers.

3. Difference between microeconomics and

macroeconomics

Bases Microeconomics Macroeconomics

Meaning Microeconomics is the branch of Macroeconomics is the branch of

economics that deals with the economics that deals with the behavior
behavior of an individual economic of an entire economy.
agent such as a consumer, a producer
and so on.

Founder Adam Smith is the father of economics John Maynard Keynes is the founder of
and the founder of microeconomics. macroeconomics as a separate branch
of economics.

Scope Microeconomics covers various issues Macroeconomics covers issues like

like demand, supply, factor pricing, national income, unemployment,
price and output determination, and balance of payment and so on.
so on.

Variables Microeconomics studies individual Macroeconomics studies aggregate

variables such as a consumer. variables such as national income.
Significance Microeconomics is used in Macroeconomics is used in policy
determining the price of product, making and maintaining stability and
price of factors within the economy. deals with inflation, unemployment and
so on.

Limitation Microeconomics is based on Macroeconomics is based on

unrealistic assumption such as full introspection which is not always
employment and perfect competition. accurate.
Economics:-
Economics is the social science which studies how people, business, government and
society choose to use limited resource to satisfy their unlimited needs and wants.

Nature and Scope of Economics: -

Its nature involves the use of scientific methods to study human behavior, while its scope
is vast, covering everything from individual decisions to the functioning of the global
economy.

Nature of Economics:-
The nature of economics explains what economics is about — its subject matter, meaning,
and characteristics.

1. Economics as a Social Science: -

Economics studies human behavior related to production, consumption, and distribution

of goods and services. It deals with human beings, not physical objects.

2. Economics is a Study of Scarcity and Choice: -

Resources are limited, but human wants are unlimited. Therefore, economics studies how
people make choices to use scarce resources efficiently.

3. Economics is Both Science and Art:-

As a Science: It has laws and principles (like law of demand, supply, etc.). As an Art: It
teaches how to apply these laws in real life (e.g., budgeting, policy making).

4. Economics Deals with Wealth and Welfare:-

It studies how wealth is produced, distributed, and used for improving human welfare.

5. Economics is Dynamic:-

Economic conditions and problems change over time (e.g., inflation, unemployment,
development).

Scope of Economics: -
The scope of economics means the areas or branches that economics studies.

1. Microeconomics: Studies individual consumers, firms, and markets.

2. Macroeconomics: Studies the whole economy — national income, inflation,
unemployment, etc.

3. International Economics: Deals with trade and relations between countries.

4. Development Economics: Studies how poor countries can become developed.

5. Public Finance: Studies of government income, expenditure, and taxation.

 Law of economics

Definition:
The law of economics refers to the general principles or rules that explain human
economic behavior how people produce, consume, exchange and distribute goods and
services.

Nature of Economic Laws:

1. They are not universal (they may change from time to time or country to country).

2. They work under certain conditions — “other things being equal” (ceteris paribus).

3. They are based on human behavior, not on natural forces.

4. They can be tested and observed in real life.

Main Laws of Economics:

Law of Demand: When price increases, demand decreases. If rice price goes up, people
buy less rice.

Law of Supply: When price increases, supply increases. Farmers grow more wheat when
its price rises.

Law of Diminishing Marginal Utility: More you consume, less satisfaction from each extra
unit. Each extra chocolate gives less pleasure.

Law of Diminishing Returns: After a certain point, adding more workers reduces
productivity. Too many workers on small land lower output per person.

Equi-Marginal Utility: Consumers spend money Law of so satisfaction is equal across all
goods. Equal satisfaction from money spent on tea and snacks.

Law of Comparative Advantage: A country should produce what it makes best and trade
for others. Bangladesh makes garments, Japan makes cars.
Example: If the price of a product increases, people buy less of it — this is explained by the
Law of Demand.

Applicability of Economic Laws:

Economic laws are applicable in real-life situations, but not as universally or exactly as
natural or scientific laws. Their applicability depends on human behavior and changing
economic conditions.

Conclusion:

The laws of economics explain how people, businesses, and governments make decisions
to use limited resources efficiently. They help us understand how production, distribution,
and consumption of goods and services work. In conclusion, economic laws are important
because they guide us in achieving growth, stability, and fairness in the economy. Though
these laws are not as exact as scientific laws, they are based on real human behavior and
help in solving economic problems effectively.
Positive vs Normative Economics
Positive and normative economics are two important branches of economic study that
differ in their nature, purpose, and approach.

Positive economics is concerned with describing and explaining economic phenomena as

they are. It deals with facts, data, and cause-and-effect relationships. For example,
statements like “An increase in the supply of money leads to inflation” or “Higher prices to
reduce consumer demand” are positive because they can be tested and verified.

On the other hand, normative economics deals with opinions, beliefs, and value
judgments. It focuses on what the economy should be rather than what it is. Statements
such as “The government should provide free healthcare” or “Taxes on the rich should be
increased” are normative because they express personal or societal views that cannot be
tested scientifically.

In short, positive economics explains the real-world situation using evidence, while
normative economics provides suggestions and opinions to improve economic conditions.
Thus, positive economics is objective and fact-based, whereas normative economics is
subjective and opinion based.
 Some basic economics concept

Definition
Economic concepts refer to the collection of basic ideas that explain various occurrences
in the economy, like the actions and choices of economic agents. Therefore, a basic
understanding of the concepts is important in studying and analyzing the decisions and
behavior of economic agents. For example, it includes the producers' and consumers'
decisions on producing and buying.

1. Scarcity

Scarcity is one of the key economic concepts. In economics, it refers to the limited
availability of resources for human consumption. The world population needs are
unlimited, whereas the resources to meet the needs are limited. The limited feature of
resources makes it more valuable and expensive. Effective resource allocation techniques
and integration of alternatives confront the scarcity issues. Examples of scarce resources
are oil and gold. Its scarcity will limit the human want for it.

2. Supply Demand

Another important economic concept is supply-demand. Supply refers to the number of

goods and services available for consumers. The law of supply states that as price
increases, also supply increases and vice versa. Hence the supply curve is upward sloping.

Demand indicates the number of goods and services consumers are willing and able to
purchase. According to the law of demand, as price increases, demand decreases and
vice versa. Therefore it points to a downward sloping demand curve. If demand is greater
than supply, the price of goods and services tends to increase in a market, but the price
decreases if supply is greater than demand. The equilibrium price happens when the
supply meets with demand.

If the price of a chocolate brand increases, its demand decreases and vice versa. When
the price of cocoa rises in the global market, chocolate price increases, and producers
increase the supply to obtain the advantage.

3. Incentives

Incentive refers to the factor that influences the consumer in the decision-making process.
Two types of incentives are intrinsic and extrinsic incentives. Intrinsic incentives originated
in the consumer without any outside pressure, whereas extrinsic incentives developed due
to external rewards. For example, the decrease in the price of a discretionary item is an
incentive to purchase that item.

4. Trade-off and Opportunity Cost

A trade-off occurs when a decision leads to choosing one thing over another. The loss
incurred by not selecting the other option is called opportunity cost when one option is
selected. For example, a trade-off occurs when Mr. A takes a day off at university to go to a
cinema. The opportunity cost is what Mr. A loses by not attending university for a day like
participation point.

5. Economic Systems

An economic system comprises various entities forming a social structure that enables a
production system, allocation of resources, and exchange of products and services within
a community. Capitalism, communism, socialism, and market economy are types of
economic systems.

6. Factors of production

Another important economic concept is factors of production. It refers to inputs applied to

the production process to create output: the goods and services produced in an economy.
The essential factors of production forming the building blocks of an economy include
land, labor, capital, and entrepreneurship. For example, consider a manufacturing entity,
where factors of products are land representing the natural resources used, labor
represents the work done by workers, capital represents the building, machinery,
equipment, and tools involved in the production, and finally, the entrepreneur aligns other
factors of production to create the output.

7. Production Possibilities

In economics, production possibility frontier is a curve in which each point represents the
combination of two goods that can be produced using the given finite resources. For
example, a farmer can produce 20,000 apples and 30,000 apricots in his fixed land so that
the trees are placed to have adequate space to develop a healthy root system and receive
enough sunlight. However, if he intends to produce 50,000 apricots, he will make only
10,000 apples on his farm.
8. Marginal Analysis

The marginal analysis compares the additional cost incurred and the corresponding
additional benefit obtained from an activity. Usually, companies planning to expand their
business by adding another production line or increasing volumes perform this analysis.
For example, if a company has enough capacity to increase production but improves the
warehouse facility, a marginal analysis indicates that expanding the warehouse capacity
will not affect the marginal benefit. In other words, the ability to produce more products
outweighs the increase in cost.

9. Circular Flow

The circular flow model in economics primarily portrays how money flows through different
units in an economy. It connects the sources and sinks of factors of production, consumer
& producer expenditures, and goods & services. For example, resources move from
household to firm, and goods and services flow from firms to households.

10. International Trade

International trade occurs when a trade happens between countries. Goods and services
are traded across countries contributing significantly to GDP. The two main types of
international trade are import and export. Import is the purchase of goods or services from
another country. In this form, payment has to be made to the other country. Thus, it
involves the outflow of money. The sale of goods and services to another country is called
exports. In this form, payment is received from another country. Thus, it involves an inflow
of money. Examples of international trade include trade between companies in China and
USA, and goods exported from China to the USA include electrical and electronic
equipment.
Economics and other related discipline

Political Science :
Forms the basis of Political Economy, examining the interplay between political
institutions, the political environment, and economic systems.

Sociology :
Connects through fields like Economic Sociology, focusing on how social relations,
institutions, and culture influence economic behavior and market formation.

Mathematics & Statistics :

Provide the foundational tools for formal economic modeling and analysis, especially in
Econometrics and Mathematical Economics.
Finance :
Focuses on the management of money and investments, often overlapping significantly
with Financial Economics.

Accounting :
Deals with the measurement and communication of financial information about economic
entities.

Psychology :
Central to Behavioral Economics, helping economists understand non rational decision
making.

History :
Explored in Economic History, which uses economic theory to understand historical
events and analyzes how economies and institutions have evolved over time.

Geography :
Relevant in Economic Geography and Urban Economics, which study the location and
spatial distribution of economic activities, resources, and wealth.

Law :
The study of the legal impact on economic behavior, known as Law and Economics, which
analyzes regulations, contracts, and property rights.
Different economic systems

Introduction
An economic system refers to the way in which a country organizes and manages its
limited resources to satisfy human wants. It answers three fundamental questions:

1. What to produce?

2. How to produce?

3. For whom to produce?

Each country designs its economic system according to its political ideology, social
structure, and level of development. According to K.K. Dewett, there are mainly three types
of economic systems in the world:

1. Capitalist Economy

2. Socialist Economy

3. Mixed Economy

1. Capitalist Economy
A capitalist economy is one in which the means of production (land, factories, machinery,
etc.) are owned and controlled by private individuals. The main motive of production is
profit maximization, and the market is governed by the forces of demand and supply. The
government plays a limited role in economic activities.

Main Features:

Private Ownership: All resources and industries are owned by individuals or private firms.

Profit Motive: The main goal is to earn maximum profit.

Freedom of Enterprise: Individuals can freely start any business or occupation.

Price Mechanism: Prices are determined by demand and supply.

Consumer Sovereignty: Consumers decide what should be produced.

Examples: United States, Japan, Australia.

Advantages: Encourages innovation, competition, and rapid economic growth.

Disadvantages: Creates income inequality, unemployment, and economic instability.

2. Socialist Economy
A socialist economy is one where the means of production are owned and managed by the
state. The main objective is social welfare and economic equality, not profit. All major
economic decisions what, how, and for whom to produce are made by the central planning
authority.

Main Features:

Public Ownership: All productive resources belong to the government.

Central Planning: The government formulates economic plans for development.

Equitable Distribution: Income and wealth are distributed equally.

No Unemployment: The state ensures jobs for all citizens.

Social Welfare Objective: The goal is to promote collective well-being.

Examples: North Korea, Cuba, former Soviet Union.

Advantages: Reduces poverty, ensures equality, and promotes social justice.

Disadvantages: Lack of efficiency, innovation, and individual motivation.

3. Mixed Economy
A mixed economy combines the best features of both capitalism and socialism. In this
system, both the private sector and public sector operate side by side. The government
intervenes to regulate the economy and reduce inequality, while the private sector
promotes efficiency and innovation.

Main Features:
Coexistence of Sectors: Both private and public enterprises function together.

Economic Planning: The government formulates plans to ensure development.

Balanced Objectives: Both profit and social welfare are emphasized.

Government Regulation: The government controls monopolies and unfair trade.

Social Security: The state ensures basic needs like education and healthcare.

Examples: Bangladesh, India, France, United Kingdom.

Advantages: Ensures balanced growth, employment, and social justice.

Disadvantages: Bureaucracy, corruption, and delay in policy implementation.

Conclusion
Every economic system has its own strengths and weaknesses. Capitalism promotes
competition and innovation but increases inequality. Socialism ensures equality but
reduces efficiency. Mixed economy tries to strike a balance between the two by combining
efficiency with social justice.

Today, almost every nation in the world follows a mixed economic system, as it provides
both growth and fairness in resource distribution.
References
1. K.K. Dewett (2021). Modern Economic Theory. S. Chand & Company Ltd.

2. Paul A. Samuelson & William D. Nordhaus (2010). Economics. McGraw-Hill Education.

3. Mankiw, N. G. (2021). Principal of economics (9th addition)

4. Basic Concepts of Economics: Definition, Explanation, and Key FAQs ([Link])

5. Basic Economic Concepts, SCARCITY, CHOICE, AND OPPORTUNITY COST ([Link])

6. Branches of economics - Economics Help

7. Relationship of Economics with Other Subjects ([Link])