December 10, 2016 A GUIDED BOOK O F ECONOMICS

A Guided Book Of
Economics

Abu Saleh Musa Miah(Abid)

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ABU SALEH MUSA MIAH (ABID)
December 10, 2016 A GUIDED BOOK O F ECONOMICS

A Guidebook of

Economics

Engr. Abu Saleh Musa Miah (Abid)

Lecturer, Rajshahi Engineering Science and Technology College(RESTC)
B.Sc.Engg. in Computer Science and Engineering(First Class First)
M.Sc.Engg.(CSE-Pursuing),University of Rajshahi.
Email:abusalehcse.ru@gmail.com
Cell:+88-01734264899

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December 10, 2016 A GUIDED BOOK O F ECONOMICS

Economics
============================================================================================================

Writer : Engr. Abu Saleh Musa Miah (Abid).

B.Sc.Engg. in Computer Science and Engineering(First Class
First)
M.Sc.Engg.(CSE-Pursuing),University of Rajshahi.
Cell:+88-01734264899

Email : abusalehcse.ru@gmail.com
Publisher : Abu Syed Md Mominul Karim Masum.
Chemical Engr.
Chief Executive Officer (CEO)
Swarm Fashion, Bangladesh.
Mohakhali,Dhaka.
Email : swarm.fashion@gmail.com

Cover page Design : Md. Kaiyum Nuri

Chief Executive Officer (CEO)
Jia Shah Rich Group(Textile)
MBA,Uttara University

First Publication : Octobor-2016

Copyright : Writer
Computer Compose : Writer
Print : Royal Engineering Press & Publications.
Meherchandi, Padma Residential Area, Boalia, Rajshahi.

Reviewer Team : Engr. Syed Mir Talha Zobaed.

B.Sc. Engg. (First Class First)
M.Sc. Engineering (CSE)
University of Rajshahi

Omar Faruk Khan (Sabbir)

M. Engineering (CSE) University of Rajshahi

PRICE :
400.00 TAKA (Fixed Price).
US 05 Dollars (Fixed Price).
N.B: All rights reserved. No part of this work may be reproduced or transmitted in any form or
by any means, Electronic or mechanical, including photocopying, recording, or by any
information storage or retrieval system, without the prior written permission of the copyright
owner and the publisher. It is hereby declared that, if someone or somebody copy the book or
try to copy the book as partially or wholly for personal use or merchandizing, is punishable
offence and the Publisher may take lawful action and can demand 10, 00, 000 (Ten lacks) TK as
compensation against them.
OOP CPP : Engr. Abu Saleh Musa Miah (Abid).
Published by : Royal Engineering Press, Bangladesh
Meherchandi, Padma R/A, Boalia, Rajshahi.

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December 10, 2016 A GUIDED BOOK O F ECONOMICS

Dedicated
To
All my Student’s of Rajshahi Engineering Science and
Technology college.
(Sharmin,Farjana,Pritul,Sony,Monika,Sarwar,Jery,Mitu,Joyonto,
Abdulla,Sobur,Jony,Eva,Shishir,Mishkat,Rafi,Tuhin)

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[ This Page is Left Blank Intentionally ]

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December 10, 2016 A GUIDED BOOK O F ECONOMICS

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Avgvi Kv‡Q g~j¨evb, Kvib AvcwbB ej‡Z cvi‡eb Avcbvi Dc‡hvMx K‡i eBwU †jLv n‡jv wKbv A_©vr eBwU
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Ki‡e|

Engr. Abu Saleh Musa Miah (Abid)

Writer

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December 10, 2016 A GUIDED BOOK O F ECONOMICS

ACKNOWLEDGEMENTS
I wish to express my profound gratitude to all those who helped in making this book a reality;
especially to my families, the classmates, and authority of Royal Engineering Publications for their
constant motivation and selfless support. Much needed moral support and encouragement was
provided on numerous occasions by my families and relatives. I will always be grateful, to the
numerous web resources, anonymous tutorials hand-outs and books I used for the resources and
concepts, which helped me build the foundation.

I would also like to express my profound gratitude to Engr. Syed Mir Talha Zobaed for his outstanding
contribution in inspiring, editing and proofreading of this guidebook. I am also grateful to Omar
Faruque Khan (Sabbir) for his relentless support and guideline in making this book a reality.

I am thankful to the following readers those have invested their valuable times to read this book
carefully and have given suggestion to improve this book:

Engr. Mainuddun Maruf (Principle,RESTC. B.Sc. Engg in Electrical and Electronics Engineering. IUT,)
Md.Moyeed Hossain (B.Sc.Engr. Computer Science and Engineering ,RUET, Lecturere, RESTC).
Md.Shamim Akhtar (B.A Honours,English,M.A. Lecturere, RESTC)
………………………………... And numerous anonymous readers.
I am also thankful to the different hand notes from where I have used lots of solutions, such as
Dynamic Memory Allocation,Operator overloading etc

I wish to express my profound gratitude to the following writers whose books I have used in my
Guidebooks:

1 Herbert Schildt C++:

The Complete Reference
Third Edition
2 Steve Ouallin Practical Programming
3 H. Schidt C++: The Complete Reference,
McGraw Hill
4 N. Barkakati Object Oriented Programming
with C++, Prentice Hall India
5 B. Stroustrap The C++ Pr

…………………….. and Numerous anonymous Power Point Slides and PDF chapters from different North
American Universities.

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December 10, 2016 A GUIDED BOOK O F ECONOMICS

Economic
s Syllabus

ECON1211: Economics
50 Marks [70% Exam, 20% Quizzes/Class Tests, 10% Attendance]
2 Credits, 22 Contact hours, Exam. Time: 3 hours

Basic Concepts of Economics: Definition and subject matter of Economics; Microeconomics vs macroeconomics;
Law of Economics; Central economic problems of every society; Different economic systems; Economics and
Engineering.

Theory of Demand, Supply and Consumer Behavior: Law of Demand; Demand schedule and demand curve; Supply
law, Supply schedule and supply curve; Shift in demand and supply; Equilibrium in the market; Elasticity of
demand and supply
Production and Costs and Theory of the Firm: Meaning of production; Factors of production; Concepts of total,
average and marginal costs, fixed and variable costs.

Theory of the Firm: Perfect competition and monopoly; Total, average and marginal revenue of a firm; Average
and marginal revenue under perfect competition and monopoly; Firm’s Equilibrium; Equilibrium of firm under
perfect competition and monopoly. The Input-Output Analysis: Meaning of input-output analysis; Input-output
analysis model; balance equation; coefficient matrix; Determination of final demand vector.

Basic Concepts of Macroeconomics: Growth; Unemployment; Inflation; Philips Curve, Business cycle; Circular flow
of economics; Two, three and four sector economics.

National Income accounting and determination: Concepts of GNP, GDP and national income; Methods of national
income accounting; Problems of national income accounting; Keynesian model of national income determination;
The multiplier; Effect of fiscal policy in the Keynesian model.

Budgets of Bangladesh: The revenue at the capital budget; Income, expenditure of the government; direct and
indirect taxes.

Development Planning in Bangladesh: Need for planning in Bangladesh; Various five year plans in Bangladesh;
Development strategies in the five year plans of Bangladesh.

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Books Recommended:

1. K. K. Dewett : Modern Economic Theory, S. Chand Publishers

2. H.L Ahuja : Advanced Economic Theory, S. Chand Publishers
3. A. Asimakopulos : An Introduction To Economic Theory: Microeconomics, Oxford University
Press
4. A. Koutsoyiannis : Modern Microeconomics, Palgrave Macmillan

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December 10, 2016 A GUIDED BOOK O F ECONOMICS

Index

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Study Outline of Econoimics

1. What do you mean by economics? Explain the concepts of total product, average product
, average procut and marginal product in economics. Exam- 2014
2. Mention the three stages of production, Explain why a rational producer concentrates
producing on the second stage of the total product curve. Exam- 2014
3. discuss what are meat by price elasticity, cross price elasticity and income elasticity of
demand. Exam- 2014
4. shwo that the price elasticity of demand ranges from zero to infinity . Exam- 2014
5. wha is meant by perfectly competitive market? State its assumptions. Exam- 2014
6. explain the conditions for obtaining equilibrium of a firm under a perfect competition.
Exam- 2014
7. distinguish between GDP and GNP Exam- 2014
8. Graphically explain the circular flow of national income in a simple two sector economy
Exam- 2014
9. discuss various steps of business cycle. Exam- 2014
10. what is inflation ? Exam- 2014
11. what are the features and causes of inflation? Exam- 2014
12. compare among the methods of measuring national income. Exam- 2014
13. what is meant by multiplier? Exam- 2014
14. describe the simple Keynesian model for the determination of national income with the
help of expenditure method. Exam- 2014
15. what are the differences between revenue budget and capital budget? Exam- 2014

16. Exam-2013
17. Why is “what to produce a problem in every economy” Exam-2013
18. How does the price mechanism solve this problem in a free enterprise economy? Exam-
2013
19. Define economic resources. What are the factors of production? Are they economic
resources? Exam-2013
20. State the law of demand and the law of supply Exam-2013
21. Define ATC, AVC, and MC, Draw them in a single diagram. Exam-2013
22. What is meant by market equilibrium? What will happen In a market if the current price
is above the equilibrium price? Exam-2013
23. What happens to the equilibrium ? what will happen in a market if the current price is
above the equilibrium price? Exam-2013
24. What happens to the equilibrium price in market if the supply curve shifts to the left?
Exam-2013
25. Mention some macroeconomic variables. Is Rajshahi city corporations annual
expenditure a macroeconomic variable? Exam-2013
26. What does the cpi measure? How is the cpi different from the GDP measurement. Exam-
2013
27. Describe the major problem of CPI measurement. Exam-2013

28. What problems does the underground economy pose for GDP measurement ? Exam-
2013
29. Define aggregate output. Exam-2013
30. Show the circular flow of national income for the three sector model and derive the
equation of natinall income from there. Exam-2013

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31. Exam 2012.

32. Critically explain the definition of economics given by L.Robbins. Exam-2012
33. Discuss the central economic problems of a society . Exam-2012
34. What do you mean by economic law? What are the limitation of economic laws. Exam-
2012
35. State th law of demand. Distinguish between demand schedule and demand curve.
Exam-2012
36. Distinguish between change in demand and change in quantity demand. Exam-2012

37. What is cross elasticity of demand ? how do you identify the relationship between tow
commodities with the help of ‘cross elasticity of demand’? Exam-2012
38. Distinguish between total fixed cost and total variable cost and present both in single
diagram ? Exam-2012
39. What is mean by equilibrium of a firm? State the conditions of the equilibrium of firm.
Exam-2012
40. Discuss short run equilibrium of a firm under perfect competition. Exam-2012
41. What is input analysis? State the assumptions o f input-output analysis. Exam-2012
42. Define co-efficient matrix and technology matrix. Exam-2012
43. Suppose there are number of different industries in the economy. If the co-efficient
matrix and final demand vector are given then how can you obtain correct level of
output for the industries? Exam-2012
44. Define macroeconomics. State the main macroeconomics variables. Exam-2012
45. Discuss the circular flow of economic activities I a three sector economy . Exam-2012
46. Define unemployment and discuss different types of unemployment. Exam-2012
47. Discuss how equilibrium national income is determined in a simple Keynesian tow
sector economy. Exam-2012
48. Define budge. Distinguish between revenue and development budget. Exam-2012
49. State the objectives and core targets of the Sixth Five-Year plan of Bangladesh. Exam-
2012

50. Exam-2011
51. Define economics? Exam-2011
52. Distinguish between micro and Macroeconomics? Exam-2011
53. Discuss the central economic problem of every society . Exam-2011
54. What is demand Explain the law of demand? Exam-2011
55. Why does a demand curve slope downward to the right. Exam-2011
56. What is elasticity of demand? From the demand function , find price
elasticity of demand when . Exam-2011
57. What is monopoly? What are the characteristic of monopoly market. Exam-2011
58. What is meant by equilibrium of a firm? Derive the conditions of equilibrium of a firm?
Exam-2011
59. Explain the short run equilibrium of a firm under perfect competition. Exam-2011
60. What do you mean by input-output analysis ? mention the assumptions of input-output
analysis. Exam-2011
61. Explain how the correct level of output is obtained in an input-output model. Exam-2011
62. Graphically present the circular flow of macroeconomic activity. Exam-2011
63. Distinguish between gross domestic product and gross national product. Exam-2011
64. What are the problems of measuring national income. Exam-2011
65. What is budget? Distinguish between revenue budget and capital budget. Exam-2011
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66. Distinguish between direct tax and indirect tax. Exam-2011

67. What are the major sources of revenue and major heads of expenditure of the
government of Bangladesh. Exam-2011

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Basic Concepts of Economics: Definition and subject matter of Economics; Microeconomics vs macroeconomics;
Law of Economics; Central economic problems of every society; Different economic systems; Economics and
Engineering.

Theory of Demand, Supply and Consumer Behavior: Law of Demand; Demand schedule and demand curve; Supply
law, Supply schedule and supply curve; Shift in demand and supply; Equilibrium in the market; Elasticity of demand
and supply
Production and Costs and Theory of the Firm: Meaning of production; Factors of production; Concepts of total,
average and marginal costs, fixed and variable costs.

Theory of the Firm: Perfect competition and monopoly; Total, average and marginal revenue of a firm; Average and
marginal revenue under perfect competition and monopoly; Firm’s Equilibrium; Equilibrium of firm under perfect
competition and monopoly.

The Input-Output Analysis: Meaning of input-output analysis; Input-output analysis model; balance equation;
coefficient matrix; Determination of final demand vector.

Basic Concepts of Macroeconomics: Growth; Unemployment; Inflation; Philips Curve, Business cycle; Circular flow
of economics; Two, three and four sector economics.

National Income accounting and determination: Concepts of GNP, GDP and national income; Methods of national
income accounting; Problems of national income accounting; Keynesian model of national income determination; The
multiplier; Effect of fiscal policy in the Keynesian model.

Budgets of Bangladesh: The revenue at the capital budget; Income, expenditure of the government; direct and
indirect taxes.

Development Planning in Bangladesh: Need for planning in Bangladesh; Various five year plans in Bangladesh;
Development strategies in the five year plans of Bangladesh.

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Chapter
1
Basic Concepts
of Economics

Important Question:

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Question: Define economics? Exam-2011

Question: Critically explain the definition of economics given by L.Robbins. Exam-2012
Question: What do you mean by economics? Explain the concepts of total product, average
product , average product and marginal product in economics. Exam- 2014
Answer:
Definition of Economics:

The word Economics is derived from the two Greek “Oikos” – a house and “nomos” – custom or
law to manage. Meaning “managing a household” Economics is the study of how society manages its
scarce resources

“Economics is a social science which deals with human wants and their satisfaction. It is
mainly concerned with the way in which a society chooses to employ its scarce resources which have
alternative uses, for the production of goods for present and future consumption”.

There have a several definition of Economic such as:

 Adam Smith gave the Wealth Definition
 Alfred Marshall gave the Welfare Definition
 Lionel Robbins gave the Scarcity Definition
 Paul Samuelson gave the Growth Definition

Adam Smith defined economics as follows:

“Economics is the science of wealth”. Economics as the study of the nature and
causes of nations’ wealth or simply as the study of wealth.

Main Characteristics of Wealth Definitions

 Exaggerated emphasis on wealth:
 Inquiry into the creation of wealth:
 A study on the nature of wealth:

Critically explain the definition of economics given by L.Robbin:

Lionel Robbins has defined economics as follows : “Economics is the science which studies human
behaviour as a relationship between ends and scarce means which have alternative uses”. Robbins has
given the above definition in his book “An Essay on the Nature and significance of Economic Science”.

The definition of Robbins is based on the following basic assumptions

 Human wants are unlimited
 Limited means to satisfy human wants
 Alternative uses of scarce resources
 Efficient use of scarce resources
 Need for choice and optimization

Question: What do you mean by economics? Explain the concepts of total product, average product , and
marginal product in economics. Exam- 2014
The cost theory of microeconomics includes a study of total, average and marginal product
Total Product:
Total product is defined as the total quantity of output produced by a firm in the given
inputs. Total product identifies the specific outputs which are possible using variable levels of counts. An
understanding of total product is essential to hehehe the short-run analysis of a firm's production.
Changes in total product are taken into account closely when there are changes in variable costs

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Average Product:
Average Product is defined as the Average produced by every worker. when we
divide the total product by output we get average product .

Averge products =(Total Product)/(Variable Inputs Employed Graph of Average and Marginal Output
=
APL=TP/L
IN the same way, we calculate the average physical product of capital
APk=TPk/K

Marginal Product:
"The net change in total production by using the additional units of labor is known as
Marginal Product of Labor" 'Marginal Product is similar to average product but is looked at from another
perspective.: Therefore allowing one to attain the following results:

where TP is total product, MP is marginal product and VI is variable inputs. The analysis of marginal
product is foundational to explaining the law of supply (upward-sloping supply curve) via the Law of
Diminishing Marginal Returns.
Reference:
[1] http://centralecon.wikia.com/wiki/Total_Product,_Average_Product_and_Marginal_Product

Question: Mention the three stages of production, Explain why a rational producer concentrates
producing on the second stage of the total product curve. Exam- 2014

Short-run production by a firm typically encounters three distinct stages as a larger amounts of a variable
input (especially labor) are added to a fixed input (such as capital). The first stage results from
increasing average product. The second stage sets it at the peak of average product, experiencing a wide range
of decreasing marginal returns, and the law of diminishing marginal returns. The third stage is then
characterized by negative marginal returns.

Three Product Curves

Three Stages

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The three stages of short-run production are readily seen

with the three product curves--total product, average product,
and marginal product.

The top panel contains the total product curve (TP). It generally
rises, reaches a peak, then falls. The bottom panel contains
the marginal product curve (MP) and the average product
curve (AP). Both curves rise a bit for small quantities of the
variable input labor, then decline.
The three short-run production stages are conveniently labeled I,
II, and III, and are separated by vertical lines extending through
both panels.

Stage I
Short-run production Stage I arises due to increasing average
product. As more of the variable input is added to the fixed input,
the marginal product of the variable input increases. Most
importantly, marginal product is greater than average product,
which causes average product to increase. This is directly
illustrated by the slope of the average product curve.Consider
these observations about the shapes and slopes of the three
product curves in Stage I.
The total product curve has a positive slope.
Marginal product is greater than average product. Marginal product initially increases, the decreases until it is
equal to average product at the end of Stage I.
Average product is positive and the average product curve has a positive slope.

Stage II
In Stage II, short-run production is characterized by decreasing, but positive marginal returns. As more of the
variable input is added to the fixed input, the marginal product of the variable input decreases. Most important of
all, Stage II is driven by the law of diminishing marginal returns.
The three product curves reveal the following patterns in Stage II.
The total product curve has a decreasing positive slope. In other words, the slope becomes flatter with each
additional unit of variable input.

Marginal product is positive and the marginal product curve has a negative slope. The marginal product curve
intersects the horizontal quantity axis at the end of Stage II.

Average product is positive and the average product curve has a negative slope. The average product curve is at
its a peak at the onset of Stage II. At this peak, average product is equal to marginal product.
Stage III
The onset of Stage III results due to negative marginal returns. In this stage of short-run production, the law of
diminishing marginal returns causes marginal product to decrease so much that it becomes negative.
Stage III production is most obvious for the marginal product curve, but is also indicated by the total product
curve.
The total product curve has a negative slope. It has passed its peak and is heading down.
Marginal product is negative and the marginal product curve has a negative slope. The marginal product curve
has intersected the horizontal axis and is moving down.
Average product remains positive but the average product curve has a negative slope.

Rational Producer Concentrates Producing On The Second Stage Of The Total Product Curve:
These three distinct stages of short-run production are not equally important. Stage I,
and with largely increasing marginal returns, is a great place to visit, but most firms move through it quickly.
Stage III, with negative marginal returns, is not particularly attractive to firms. Production is less than it would be

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in Stage II, but the cost of production is greater due to the employment of the variable input. Not a lot of benefits
are to be had with Stage III.

Stage II, with decreasing but positive marginal returns, provides a range of production that is suitable to most
every firm. Although marginal product declines, additional employment of the variable input does add to total
production. Even though production cost rises with additional employment, there are benefits to be gained from
extra production. The trick is to balance the extra cost with the extra production.
As a matter of fact, because Stage II tends to be the choice of firms for short-run production, it is often referred to
as the "economic region." Firms quickly move from Stage I to Stage II, and do all they can to avoid moving into
Stage III. Firms can comfortably, and profitably, produce forever and ever in Stage II.

Question: What do you mean by economic law? What are the limitation of economic laws. Exam-2012
Economics Law:
The term law is used in several senses. For example, in jurisprudence it means a rule of
conduct set up by a state for the guidance of its subjects. But in the sciences generally, where there is
regularity in recurrence of phenomena we say there is scientific law. Where the phenomena which
recur with regularity are economic phenomena, that is, where they have to do with man's relations
to wealth, we have economic laws. For example, when men melt gold coins to secure bullion, they
usually melt full-weight coins, in preference to coins which are much worn and therefore light. The
regularity of such action is an economic law, and is of much consequence in economic

Limitation of economics law:

It is sometimes urged that economic laws are not real laws because they are concerned
with human actions and that since the will is free, there will not be sufficient regularity in these actions
to permit them to be called laws. This contention, however, fails to take into account the meaning of
economic laws. A person is not compelled to obey economic laws, but the motives which influence him
in dealing with economic phenomena will usually lead him to act in accordance with economic laws.
Thus, the man who melts gold coin to secure bullion is perfectly free to melt the lighter coins. But the
motive of self-interest will usually lead him to melt full-weight coins.

Question: Discuss the central economic problems of a society . Exam-2012

Question:Discuss the central economic problem of every society . Exam-2011
Question: Why is “what to produce a problem in every economy” Exam-2013
Economists have analysed economic systems from a broad perspective. These modern economists talk about three
main economic problems:
(1) What to produce;
(2) How to produce and
(3) For whom to produce.

In short, these are called the ‘What, How and for Whom’ questions.
What To Produce?
This question arises from the fact that human wants are unlimited, while resources are limited.
The satisfaction of human wants requires the consumption of goods and services. Human beings, therefore,
wish to consume goods and services. But, since resources are limited, the economic system cannot produce
all types of goods and services.
How To Produce
The second basic problem that every economy must solve is that of deciding how to produce
the goods and services (that the economy has decided to produce). The economy must choose a particular
way of producing the specified amount of the good. Moreover, this must be done for each of the different
goods and services that the economy wants to produce.

 Choice of Techniques
A particular way of producing a particular good or service (or a set of goods and
services) is called a technique of production.

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For Whom To Produce?

Suppose now that the first two basic problems have been solved i.e., the economy has decided
the amounts of production of various goods and services and has also chosen the appropriate techniques
for producing them. There still remains the problem of deciding the manner in which the produced goods
and services will be used. That will, obviously, be used to satisfy human wants. Who will get (to consume)
the produced commodities? This is known as the question: ‘For whom to produce? It is also known as the
problem of distribution.

Question: How does the price mechanism solve this problem in a free enterprise economy? Exam-2013
Price Mechanisem:
The system in a market economy whereby changes in price in response to changes in
demand and supply have the effect of making demand equal to supply.

Price Mechanism solve problem in Free enterprize economy:

Free Eterprize economy is a system where every individual can function and
operate free as a consumer or producer. The free market economy can be used to solve the 3 basic
economic problems which is what to produce?, how to produce?, and for whom to produce.

In a capitalist economy, all the central problems are solved with the help of price mechanism. Now we
would sec as to how all the central problems—what to produce, how to produce and for whom to
produce—arc solved with the help of price mechanism.

1. What to produce?
In a capitalist economy, production of a commodity is decided by the forces of
demand and supply.
In the aggregate output, what should be the quantities of different commodities. This decision is also
taken by the equilibrium of demand and supply of different commodities. The production of the
commodity is increased whose price goes up as a result of increase in its demand. On the other hand, if
the demand of a commodity declines, its production is reduced.
2. How to produce?
A commodity can be produced adopting a number of techniques. The method or technology
which is the cheapest is adopted and the one which is costlier is abandoned.
Therefore, the decision as to how goods should be produced depends on the prices of factors. A
producer combines various factors for producing a commodity in such a way so that his production cost
is minimum. For example, coal and diesel both can be used as fuel. If coal is cheaper in comparison to
diesel, coal would be used and reverse would be the case if diesel is cheaper.
In this way, the choice of technique of production or the factor combination depends upon the factor
prices. In a country where there is abundance of labour and wages are low, more of labour and less of
capital! would be used. On the other hand, in a country where there is less of labour and more of
capital, capital-intensive techniques would be used.
3. For whom to produce?
In a capitalist economy, production of commodities depends upon the buying capacity
of the consumers in the market. It is a well known fact that the paying capacity of a consumer depends

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upon his purchasing power or his income. Besides this, the income of a consumer depends upon the fact
as to how much his services are demanded. Higher the demand for a person's services, higher would be
his income. out for such persons whose incomes are more or who can pay.Therefore, in a capitalist
economy, it is observed that price-mechanism facilitates more production of luxuries meant for rich
people and less production of goods of mass consumption meant for poor people.

Reference:
[1] http://www.yourarticlelibrary.com/economics/the-role-of-price-mechanism-in-a-free-market-
economy-or-capitalism/10548/

Economic Problem
The main economic problems faced by every society are:
1. Unlimited human wants,
2. Limited availability of resources to satisfy those wants, and
3. Fulfillment of unlimited wants with limited resources.
In any society, human wants are unlimited. If one want is satisfied, the other appears soon. For
instance, if the basic needs of human being (e.g., food, clothing and shelter) are satisfied then some
secondary needs appear very soon. These secondary needs may be social needs, i.e., need for attaining
a social function, need for fulfilling some social obligations, etc. However, in comparison with this
unlimited human wants, the resources required to satisfy such wants remain limited.
Thus, the main problem before any society is to satisfy the unlimited wants with limited resources.
Here arises the problem of choice or selection. It implies that every society has to arrange its
requirements in order of priority. Then, with its limited resources, the society has to satisfy the human
wants in order of priority. In Economics, we try to analyse the causes behind these basic economic
problems and find out possible ways to solve the said problems.

Causes behind Economic Problems

The main causes behind the economic problems of any society are:
1. Unlimited human wants: Every human being requires varieties of goods and services for maintaining
and improving his or her standard of living. Whenever the basic needs of food, clothing and shelter are
fulfilled then the people feel that they ‘want’ and ‘need’ education, book, pen and pencil, eraser, chair,
table, television, tape-recorder, CD-player, computer, travel, sports, finer clothes, washing machine,
and thousands of such items. In a modern society, these wants are increased further in response to the
pressures of fashion and advertising. These wants appear one after another like untiring waves of the
sea.

2. Limited resources for satisfying these wants: Production of various goods and services require
resources like land resources, mineral resources, forest resources, physical capital (e.g., machines,
factory sheds, etc.) and money capital, human resources (e.g., skilled man power), etc. However,
compared to the unlimited wants for various goods and services, these resources seem to be

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insufficient. It implies that even if all these available resources are fully employed for producing
various goods and services, only a small part of human wants can be satisfied. So, scarcity of resources
is an important reason behind the economic problem in any society.

Question: Discuss the circular flow of economic activities I a three sector economy . Exam-2012
Question: Distinguish between micro and Macroeconomics? Exam-2011

Microeconomics Macroeconomics
1. It is that branch of economics which deals 1. It is that branch of economics which deals
with with aggregates and averages of the entire
the economic decision-making of individual economy, e.g., aggregate output, national
economic agents such as the producer, the income, aggregate savings and investment,
consumer, etc. etc.
2. It takes into account small components of the 2. It takes into consideration the economy of
whole economy. any
3. It deals with the process of price country as a whole.
determination 3. It deals with general price-level in any
in case of individual products economy.
and factors of production. 4. It is also known as the income theory (since
4. It is known as price theory (since it explains it
the process of allocation of economic resources explains the changing levels of national
along alternative lines of production on the income in any economy during any particular
basis of relative prices of various goods and time period.)
services.) 5. It is concerned with the optimisation of the
5. It is concerned with the optimisation goals of growth process of the entire economy.
individual consumers and producers (e.g., 6. It studies the circular flow of income and
individual consumers are utility-maximisers, expenditure between different sectors of the
while individual producers are economy (say, between the firm sector and
profitmaximisers.) the household sector.)
6. It studies the flow of economic resources or 7. Macroeconomic theories help us in
factors of production from any individual formulating appropriate policies for
owner of such resources to any individual user controlling inflation (i.e., rising price-level),
of these resources, etc. unemployment, etc.
7. Microeconomic theories help us in 8. It takes into account the aggregates over
formulating appropriate policies for resource heterogeneous or dissimilar products (say, the
allocation at the firm level. Gross Domestic Product
8. It takes into account the aggregates over
homogeneous or similar products (e.g., the
supply of steel in an economy.)

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Chapter
2
Theory of Demand,
Supply and Consumer
Behavior:

Important Question:

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Question:Discuss what are meat by price elasticity, cross price elasticity and income elasticity of
demand. Exam- 2014

Definition of Elasiticity:
Elasticity is the term used in economics to explain the responsiveness of one
variable to changes in another variable.

Price Elasticity of Demand:

Price Elasticity of Demand is the term used to explain the
esponsiveness of the quantity demanded to a change in price. A measure of the responsiveness of
the quantity demanded of a good to a change in its price (ceteris paribus).

 Price elasticity is a measure of the responsiveness of the quantity demanded to a change

in price. It is calculated as the percentage change in quantity demanded to a percentage
change in price .
 When quantity demanded is very responsive to a change in price we say demand is
elastic; when quantity demanded is not very responsive to a change, we say that demand
is inelastic.

Cross Elasticity:

Income Elasticity:

Question:Shwo that the price elasticity of demand ranges from zero to infinity . Exam- 2014
Zero to Infinity:

Question:Wha is meant by perfectly competitive market? State its assumptions. Exam- 2014
Question:What is meant by market equilibrium? What will happen In a market if the current
price is above the equilibrium price? Exam-2013
Question:What happens to the equilibrium ? what will happen in a market if the current price is
above the equilibrium price? Exam-2013
Question:What happens to the equilibrium price in market if the supply curve shifts to the left?
Exam-2013
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Question:Define economic resources. What are the factors of production? Are they economic
resources? Exam-2013
Question:What is demand Explain the law of demand? Exam-2011
Question:What is cross elasticity of demand ? how do you identify the relationship between tow
commodities with the help of ‘cross elasticity of demand’? Exam-2012
Question:State th law of demand. Distinguish between demand schedule and demand curve.
Exam-2012
Question:Distinguish between change in demand and change in quantity demand. Exam-2012
Question:State the law of demand and the law of supply Exam-2013
Question:Define ATC, AVC, and MC, Draw them in a single diagram. Exam-2013
Question:Distinguish between total fixed cost and total variable cost and present both in single
diagram ? Exam-2012
Question:Why does a demand curve slope downward to the right. Exam-2011
Question:What is elasticity of demand? From the demand function , find price
elasticity of demand when . Exam-2011
Question:What is meant by equilibrium of a firm? Derive the conditions of equilibrium of a firm?
Exam-2011
Question:Explain the short run equilibrium of a firm under perfect competition. Exam-2011

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Chapter
3
Theory of
firm

Important Question:

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What is Firm?
Firm:
A firm is an organization which produces and supplies goods that are demanded by
the people. According to Prof. S.E. Lands-bury, “Firm is an organization that produces and sells goods
with the goal of maximizing its profits. In the words of Prof. R.L. Miller, “Firm is an organization that
buys and hires resources and sells goods and services.”

Question:What is mean by equilibrium of a firm? State the conditions of the equilibrium of firm.
Exam-2012or
Question: Explain the conditions for obtaining equilibrium of a firm under a perfect
competition. Exam- 2014
Equilibrium of a firm:
A firm is in equilibrium when it has no tendency to change its level of output. It needs neither
expansion nor contraction. It wants to earn maximum profits. In the words of A.W. Stonier and D.C.
Hague, “A firm will be in equilibrium when it is earning maximum money profits.”
Equilibrium of the firm can be analyzed in both short-run and long-run periods. A firm can earn the
maximum profits in the short run or may incur the minimum loss. But in the long run, it can earn only
normal profit.
Conditions Of Equilibrium Of The Firm and Industry:
The firm is in equilibrium when it is earning maximum profits as the difference between its
total revenue and total cost.
For this, it essential that it must satisfy two conditions:
(1) MC = MR, and
(2) The MC curve must cut the MR curve from below and after the point of equilibrium it must be
above the MR.
This is the second order condition. Under conditions of perfect competition, the MR curve of a firm
overlaps with the AR curve. The MR curve is parallel to the X axis. Hence the firm is in equilibrium
when MC = MR = AR.

The first order figure (1), the MC curve cuts the MR curve first at point X. It contends the condition of MC
= MR, but it is not a point of maximum profits for the reason that after point X, the MC curve is beneath
the MR curve. It does not pay the firm to produce the minimum output OM when it can earn huge
profits by producing beyond OM. Point Y is of maximum profits where both the situations are fulfilled.
Amidst points X and Y it pays the firm to enlarges its productivity for the reason that it’s MR > MC. It will
nevertheless stop additional production when it reaches the OM1 level of productivity where the firm

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fulfils both the circumstances of equilibrium. If it has any plants to produce more than OM1 it will be
incurring losses, for its marginal cost exceeds its marginal revenue beyond the equilibrium point Y.
The same finale hold good in the case of straight line MC curve and it is presented in the figure (2).

Question: Discuss short run equilibrium of a firm under perfect competition. Exam-2012
Definition of the Short-run :
The short run is a period of time in which the firm can vary its output by
changing the variable factors of production in order to earn maximum profits or to incur minimum
losses. The number of firms in the industry is fixed because neither the existing firms can leave nor
new firms can enter it.

Short Run Equilibrium of the Firm:

A firm is in equilibrium in the short run when it has no propensity to enlarge or contract its
productivity and needs to earn maximum profit or to incur minimum losses.
The short run is an epoch of time in which the firm can vary its productivity by changing the erratic
factors of production. The number of firms in the industry is fixed since neither the existing firms can
leave nor new firms can enter it.
Postulations
1. All firms use standardised factors of production
2. Firms are of diverse competence
3. Cost curves of firms are dissimilar from each other
4. All firms sell their produces at the equal price ascertained by demand and supply of the
industry so that the price of each firm, P (Price) = AR = MR
5. Firms produce and sell various volumes
The short run equilibrium of the firm can be described with the helps of marginal study and total cost
revenue study.
 Marginal Cost, Marginal Revenue analysis – During the short run, a firm will produce only its
price equals average variable cost or is higher than the average variable cost (AVC).
Furthermore, if the price is more than the averages total costs, ATC, i.e. P = AR > ATC the firm
will be earning super normal profits. If price equals the average total costs, i.e. P = AR = ATC
the firm will be earning normal profits or break even.

 If price equals AVC, the firm will be incurring losses. If price drops even a little below AVC, the
firm will shut down since in order to produce it must cover atleast it’s AVC through short run.
So during the short run, under perfect competition, affirm is in equilibrium in all the above
mentioned stipulations.

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 Super normal profits – The firm will be earning super normal profits in the short run when
price is higher than the short run average cost.

 Normal Profits = The firm may earn normal profits when price equals the short run average
costs.

 Total Cost – Total Revenue Analysis – The short run equilibrium of the firm can also be
represented with the help of total cost and total revenue curves. The firm is able to maximise
its profits when the positive discrimination between TR and TC is the greatest.

Important Question:Discuss Long-run Equilibrium of the Firm?

Long-run Equilibrium of the Firm
In the long-run, it is possible to make more adjustments than in the short-run.
The firm can adjust its plant capacity and scale of operations to the changed circumstances. Therefore,
all costs are variable. Firms must earn only normal profits. In case the price is above the long-run AC
curve firms will be earning supernormal profits.
Attracted by them, new firms will enter the industry and supernormal profits will be competed away.
If the price is below the LAC curve firms will be incurring losses. As a result, some of the firms will
leave the industry so that no firm earns more than normal profits. Thus “in the long-run firms are in
equilibrium when they have adjusted their plant so as to produce at the minimum point of their long-
run AC curve, which is tangent (at this point) to the demand AR curve defined by the market price”
so that they earn normal profits.

It’s Assumptions:
This analysis is based on the following assumptions:
1. Firms are free to enter into or leave the industry.
2. All firms are of equal efficiency.
3. All factors are homogeneous. They can be obtained at constant and uniform prices.
4. Cost curves of firms are uniform.
5. The plants of firm: are equal having given technology.
6. All firms have perfect knowledge about price and output
Determination:
Given these assumptions, each firm of the industry will be in the following two conditions.
(1) In equilibrium, its short-run marginal cost (SMC) must equal to its long-run marginal cost (LMC) as
well as its short-run average cost (SAC) and its long-run average cost (LAC) and both should be equal
to MR=AR=P. Thus the first equilibrium condition is:
SMC = LMC = MR = AR = P = SAC = LAC at its minimum point, and
(2) LMC curve must cut MR curve from below.
Both these conditions of equilibrium are satisfied at point E in Figure 3 where SMC and LMC curves cut
from below SAC and LAC curves at their minimum point E and SMC and LMC curves cut AR = MR curve
from below. All curves meet at this point E and the firm produces OQ optimum quantity and sell it at
OP price.

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Question: What is monopoly? What are the characteristic of monopoly market. Exam-2011

Definition of Monopoly:
A pure monopoly is a single supplier in a market. For the purposes of regulation, monopoly
power exists when a single firm controls 25% or more of a particular market.
Or
A situation where only "one" (Greek meaning of "mono") company offers its products or
services to the public, thereby creating a monopoly, a sole supplying firm where the consumer has no
option or choice but to buy their services or products. When this occurs, and there is no competition,
prices will go up to the detriment of the public. Several government agencies keep the formation of
monopolies under control, especially in markets like telecommunications, media, and utilities, among
others.

Read more: http://www.businessdictionary.com/definition/monopolistic-market.html

Characteristics of Monopoly Market:

 Monopolies can maintain super-normal profits in the long run. As with all firms, profits are
maximized when MC = MR. In general, the level of profit depends upon the degree
of competition in the market, which for a pure monopoly is zero. At profit maximization, MC =
MR, and output is Q and price P. Given that price (AR) is above ATC at Q, supernormal profits
are possible (area PABC).

 With no close substitutes, the monopolist can derive super-normal profits, area PABC.
 A monopolist with no substitutes would be able to derive the greatest monopoly power.

Imporant Question: How Formation the Monopoly Market?

Answer:
 Monopolies can form for a variety of reasons, including the following:
 If a firm has exclusive ownership of a scarce resource, such as Microsoft owning
the Windows operating system brand, it has monopoly power over this resource and is the
only firm that can exploit it.
 Governments may grant a firm monopoly status, such as with the Post Office, which was given
monopoly status by Oliver Cromwell in 1654. The Royal Mail Group finally lost its monopoly
status in 2006, when the market was opened up to competition.

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 Producers may have patents over designs, or copyright over ideas, characters, images, sounds
or names, giving them exclusive rights to sell a good or service, such as a song writer having a
monopoly over their own material.
 A monopoly could be created following the merger of two or more firms. Given that this will
reduce competition, such mergers are subject to close regulation and may be prevented if the
two firms gain a combined market share of 25% or more.

Important Question:Write down the advantage and disadvantage of Monopolies Market?

The advantages of monopolies
Monopolies can be defended on the following grounds:
 They can benefit from economies of scale, and may be ‘natural’ monopolies, so it may be argued
that it is best for them to remain monopolies to avoid the wasteful duplication of infrastructure
that would happen if new firms were encouraged to build their own infrastructure.
 Domestic monopolies can become dominant in their own territory and then penetrate overseas
markets, earning a country valuable export revenues. This is certainly the case with Microsoft.
 According to Austrian economist Joseph Schumpeter, inefficient firms, including monopolies,
would eventually be replaced by more efficient and effective firms through a process
called creative destruction.
 It has been consistently argued by some economists that monopoly power is required to
generate dynamic efficiency, that is, technological progressiveness. This is because:
 High profit levels boost investment in R&D.
 Innovation is more likely with large enterprises and this innovation can lead to lower costs
than in competitive markets.
 A firm needs a dominant position to bear the risks associated with innovation.
 Firms need to be able to protect their intellectual property by establishing barriers to entry;
otherwise, there will be a free rider problem.
 Why spend large sums on R&D if ideas or designs are instantly copied by rivals who have not
allocated funds to R&D?
 However, monopolies are protected from competition by barriers to entry and this will
generate high levels of supernormal profits.
 If some of these profits are invested in new technology, costs are reduced via process
innovation. This makes the monopolist’s supply curve to the right of the industry supply curve.
The result is lower price and higher output in the long run.
The disadvantages of monopoly to the consumer
Monopolies can be criticised because of their potential negative effects on the consumer, including:
 Restricting output onto the market.
 Charging a higher price than in a more competitive market.
 Reducing consumer surplus and economic welfare.
 Restricting choice for consumers.
 Reducing consumer sovereignty.

Reference:
[1] https://sol.du.ac.in/mod/book/view.php?id=1579&chapterid=1579
[2]http://www.economicsdiscussion.net/firm/equilibrium-of-firm-and-industry-
definitions-conditions-and-difficulties/7225
[3]Economics Book Paul A. Samuleson.
[4] http://www.economicsonline.co.uk/Business_economics/Monopoly.html

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Chapter
4
Input output
analysis

Important Question:

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Chapter 4: The Input-Output Analysis

Important question: What is input-output Analysis?
Question:What do you mean by input-output analysis ? mention the assumptions of input-
output analysis. Exam-2011
Question:What is input analysis? State the assumptions of input-output analysis. Exam-2012
Input-Output Analysis:
Input-output analysis is the main tool of applied equilibrium analysis
Or
In economics, an input–output model is a quantitative economic technique that represents the
interdependencies between different branches of a national economy or different regional economies
Or
Input-output analysis ("I-O") is a form of economic analysis based on the interdependencies between
economic sectors. This method is most commonly used for estimating the impacts of positive or
negative economic shocks and analyzing the ripple effects throughout an economy

Assumptions Of Input-Output Analysis:

There are Many assumption fo Input-Output Analysis some are given below:
Constant Returns To Scale
This means that the same quantity of inputs is needed per unit of output, regardless of
the level of production. In other words, if output increases by 10%, input requirements will also
increase by 10%.

No Supply Constraints
I-O assumes there are no restrictions to raw materials and assumes there is enough
to produce an unlimited amount of product. It is up to the user to decide whether this is a reasonable
assumption for their study area and analysis, especially when dealing with large-scale impacts.

Fixed Input Structure

This structure assumes that changes in the economy will affect the industry's
output level but not the mix of commodities and services it requires to produce that output. In other
words, there is no input substitution in response to a change in output.
Industry Technology Assumption
An industry will always produce the same mix of commodities regardless of the level of production. In
other words, an industry will not increase the output of one product without proportionately
increasing the output of all its other products. Industry by-product coefficients are constant.

Commodity Technology Assumption

The commodity technology assumption comes into play when data are collected on an
industry-by-commodity basis and then converted to industry-by-industry matrices. It assumes that an
industry uses the same technology to produce each of its products. In other words, an industry's
production function is a weighted average of the inputs required for the production of the primary
product and each of the by-products, weighted by the output of each of the products.
The Model is Static
No price changes are built in. The underlying data and relationships are not affected
by impact runs. The relationships for a given year do not change unless another data year is
purchased.

Or

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We can Define Assumption of Input output Analysis By using only three point
 .There are n interlinked industries
 .Each industry produces one single good.
 .Each industry uses a .xed-proportion technological process

Question:Define co-efficient matrix and technology matrix. Exam-2012

What is Co-Efficent:
Number in front of a variable or term:
Co-Efficient Matrix:
The matrix formed by the coefficients in a linear system of equations.

System:

Coefficient Matrix

Or

Technology Matrix or Product Matrix:

The identification and assessment of the technologies embodied in a product can be done
using a mapping technique using a matrix. The products are listed on one leg of the matrix, and the
technologies in the form of skills and knowledge on the other. Each box of the quadrant is examined to
see what technologies are used for each product, is their potential being fully exploited, or whether
there is a need to replace them with other technologies.

A typical matrix for a computer firm would be the one shown below.

Question: Explain how the correct level of output is obtained in an input-output model. Exam-
2011

Question:Suppose there are number of different industries in the economy. If the co-efficient
matrix and final demand vector are given then how can you obtain correct level of output for
the industries? Exam-2012

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Important Question:Is it Possible to Breakdown Input-output Analysis? How?

Important Question: Discuss the breakdown Input-Output analysis Model?
Answer:
The foundation of I-O analysis involves input-output tables. Such tables include a series
of rows and columns of data that quantify the supply chain for sectors of the economy. Industries are
listed in the headers of each row and each column. The data in each column corresponds to the level of
inputs used in that industry's production function. For example, the column for auto manufacturing
shows the resources required for building automobiles (i.e., so much steel, aluminum, plastic,
electronics, and so on). I-O models typically include separate tables showing the amount of labor
required per dollar unit of investment or production.

Iportant Questio: Disscuss impact of I-O Analysis?

Answer:
I-O models estimate three types of impacts: direct, indirect and induced. These terms
are another way of saying initial, secondary and tertiary impacts that ripple throughout the economy.
By using I-O models, economists can estimate the change in inputs across industries due to a change in
output in one or more specific industries. The direct impacts of an economic shock are the initial
change in expenditures. For example, building a bridge would require spending on cement, steel,
construction equipment, labor and other inputs. The indirect, or secondary, impacts are due to the
suppliers of the inputs hiring workers to meet demand. The induced, or tertiary, impacts result from
the workers of suppliers purchasing more goods and services.

Reference:
[1] https://sol.du.ac.in/mod/book/view.php?id=1579&chapterid=1579
[2]http://www.economicsdiscussion.net/firm/equilibrium-of-firm-and-industry-
definitions-conditions-and-difficulties/7225
[3]Economics Book Paul A. Samuleson.
[4] http://www.economicsonline.co.uk/Business_economics/Monopoly.html

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Chapter
5
Basic Concepts
of
Macroeconomics

Important Question:

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Question:Define macroeconomics. State the main macroeconomics variables. Exam-2012

Definition of MacroEconomics:
Macroeconomics is a branch of the economics field that studies how the aggregate
economy behaves. In macroeconomics, a variety of economy-wide phenomena is thoroughly examined
such as, inflation, price levels, rate of growth, national income, gross domestic product and changes in
unemployment.
Or
Macroeconomics involves the study of aggregate factors such as employment, inflation, and gross
domestic product, and evaluating how they influence the economy as a whole.

Question:Mention some macroeconomic variables. Is Rajshahi city corporations annual

expenditure a macroeconomic variable? Exam-2013

Macroeconomic Variables
Economists assess the success of an economy’s overall performance by studying how it could
achieve high rates of output and consumption growth. For the purpose of such an assessment,

Three macroeconomic variables are particularly important:

1. Gross domestic product (GDP),
2. The unemployment rate, and
3. The inflation rate.

1.Gross Domestic Product:

The GDP equals the total value of goods and services produced in a country
during a year. Economic growth is, therefore, a sustainable increase in the amount of goods and services
produced in an economy over time. However, economic growth is different from economic development.
Noneconomists usually make little or no distinction between the two terms, using them
interchangeably. Going further than GDP growth, economic development can be defined as “a multi-
dimensional process of change focused on the betterment of the community, state, and/or
country … and aimed at producing more ‘life sustaining’ necessities such as food, shelter, and health
care and broadening their distribution, raising standards of living and individual self esteem, and
expanding economic and social choice” .

2.Unemployment Rate
The second most important macro-economic concept t is the unemployment rate,
which is a key indicator of the condition of the labor market. The unemployment rate is defined as the
percentage of people willing to be employed at the prevailing wage rate, yet unable to find job
opportunities. When the unemployment rate is high, work is not only hard to find, but also less
rewarding as people already holding jobs might find it difficult to get wage increases or promotions. A
low unemployment rate is an indication of good economic performance. Thus, keeping workers
employed is always a chief concern of economic policymakers.

3.Inflation:
The third most important macroeconomic concept is inflation, which is an increase in the
overall level of prices measured by the consumer price index. This index shows how the value of money
changes over time. Inflation is one of the primary concerns of economists and policymakers because it
imposes a variety of costs on the economy. When the inflation rate is high, the real value of money
erodes. People on fixed incomes, such as pensioners who receive a fixed dollar payment each month,
cannot keep up with the rising cost of living. Inflation also redistributes wealth among the population
in a way that has nothing to do with merit. When there is a sustained period of inflationary pressure,
lenders and workers lose while borrowers and employers benefit because many work and loan

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contracts in the economy are specified in terms of money. Another cost of inflation is that it
discourages saving. The income tax treats the nominal interest earned on savings as income, even
though part of the nominal interest rate merely compensates for inflation. This reduces the after-tax
real interest rate, and hence makes saving less attractive

4.International Trade:
Another major macroeconomic topic is international trade, which is the exchange of
goods and services across international borders. Because modern economies are highly
interdependent, macroeconomists often study the impact and desirability of free trade agreements.
They also study the causes and effects of trade imbalances, which occur when the quantity of goods
and services that a country sells abroad (its exports) differs significantly from the quantity of goods
and services its citizens buy from abroad (its imports.

Question:Discuss various steps of business cycle. Exam- 2014

Definition Business Cycle:
The business cycle refers to an economy's periodic patterns of growth, recession, and
recovery.
Or
The business cycle is an economic concept that shows the stages of business development.
It can refer to a single business, but is often used to describe the movements of entire market or
economy. The steps in the cycle are not necessarily in order, and can come in different arrangements
with the right factors in play. However, they do provide a general view of development that is useful
for spotting trends, patterns and potential future changes.

Step of Business cycle:

1. Expansion:
2. Recessio
3. Peak: n:
4. Trough:
5. Recovery:

Expansion:
In the expansion phase, there is an increase in various economic factors, such as production,
employment, output, wages, profits, demand and supply of products, and sales.

Peak:
The growth in the expansion phase eventually slows down and reaches to its peak. This phase is
known as peak phase. In other words, peak phase refers to the phase in which the increase in growth

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rate of business cycle achieves its maximum limit. In peak phase, the economic factors, such as
production, profit, sales, and employment, are higher, but do not increase further. In peak phase, there
is a gradual decrease in the demand of various products due to increase in the prices of input.
Recession:
In recession phase, all the economic factors, such as production, prices, saving and investment,
starts decreasing. Generally, producers are unaware of decrease in the demand of products and they
continue to produce goods and services. In such a case, the supply of products exceeds the demand.

Trough:
In this phase, it becomes difficult for debtors to pay off their debts. As a result, the rate of
interest decreases; therefore, banks do not prefer to lend money. Consequently, banks face the
situation of increase in their cash balances.

Recovery:
In recovery phase, consumers increase their rate of consumption, as they assume that there
would be no further reduction in the prices of products. As a result, the demand for consumer products
increases.

Question:What is inflation? Exam- 2014

Definition of Inflation:
Inflation is a sustained increase in the general price level of goods and services in
an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and
services.
Question:what are the features and causes of inflation? Exam- 2014
Feature of Inflation:
The characteristics or features of inflation are as follows :-
 Inflation involves a process of the persistent rise in prices. It involves rising trend in price
level.
 Inflation is a state of disequilibrium.
 Inflation is scarcity oriented.
 Inflation is dynamic in nature.
 Inflationary price rise is persistent and irreversible.
 Inflation is caused by excess demand in relation to supply of all types of goods and services.

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 Inflation is a purely monetary phenomenon.

 Inflation is a post full employment phenomenon.
 Inflation is a long-term process

The Cause’s of Inflation:

Inflation means there is a sustained increase in the price level. The main causes of inflation
are either excess aggregate demand (economic growth too fast) or cost push factors (supply side
factors).
1. Demand pull inflation
If the economy is at or close to full employment, then an increase in AD leads to an
increase in the price level. As firms reach full capacity, they respond by putting up prices leading to
inflation. Also, near full employment with labour shortages, workers can get higher wages which
increases their spending power.

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2. Cost push inflation

If there is an increase in the costs of firms, then firms will pass this on to consumers.
There will be a shift to the left in the AS
1. Rising wages
If trades unions can present a common front then they can bargain for higher wages. Rising wages are
a key cause of cost push inflation because wages are the most significant cost for many firms. (higher
wages may also contribute to rising demand)
2. Import prices
One third of all goods are imported in the UK. If there is a devaluation then import prices will become
more expensive leading to an increase in inflation. A devaluation / depreciation means the Pound is
worth less, therefore we have to pay more to buy the same imported goods

3. Raw material prices

The best example is the price of oil, if the oil price increase by 20% then this will have a
significant impact on most goods in the economy and this will lead to cost push inflation. E.g. in early
2008, there was a spike in the price of oil to over $150 causing a temporary rise in inflation
4. Profit push inflation
When firms push up prices to get higher rates of inflation. This is more likely to occur
during strong economic growth.
5. Declining productivity
If firms become less productive and allow costs to rise, this invariably leads to higher
prices.
6. Higher taxes
If the government put up taxes, such as VAT and Excise duty, this will lead to higher prices,
and therefore CPI will increase. However, these tax rises are likely to be one-off increases. There is
even a measure of inflation (CPI-CT) which ignores the effect of temporary tax rises/decreases.

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Question:Define unemployment and discuss different types of unemployment. Exam-2012

Definition of Unemployment:

Unemployment is defined as a situation where someone of working age is not able to get
a job but would like to be in full time employment.
Or
Unemployment is a phenomenon that occurs when a person who is actively searching
for employment is unable to find work. Unemployment is often used as a measure of the health of the
economy. The most frequently measure of unemployment is the unemployment rate, which is the
number of unemployed people divided by the number of people in the labor force.

Types of Unemployment:
There are Five types of unemployment: cyclical, frictional and structural.
Cyclical unemployment occurs because of the ups and downs of the economy over time. When the
economy enters a recession, many of the jobs lost are considered cyclical unemployment.

1. Structural unemployment focuses on the structural problems within an economy and

inefficiencies in labor markets.
2. Frictional unemployment is the time period between jobs when a worker is searching for or
transitioning from one job to another.
3. Cyclical unemployment is a type of unemployment that occurs when there is not
enough aggregate demand in the economy to provide jobs for everyone who wants to work.
4. Classical unemployment occurs when real wages for a jobs are set above the marketing clearing
level.
5. The natural unemployment rate represents the hypothetical unemployment rate that is
consistent with aggregate production being at a long-run level.

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Chapter
6
National Income
adn
Determination

Important Question:

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Chapter 6:National Income accounting and determination

Question:Distinguish between GDP and GNP Exam- 2014

Or
Question:Distinguish between gross domestic product and gross national product. Exam-2011
Answer:
Gross Domestic Product (GDP) and Gross National Product (GNP) both try to measure the market
value of all goods and services produced for final sale in an economy. The difference is how each term
interprets what constitutes the economy. GDP refers to and measures the domestic levels of production,
whereas GNP measures the levels of production of any person or corporation of a country.

Different Between GDP and GNP:

GDP (or Gross Domestic Product) and GNP (Gross National Product)
measure the size and strength of an economy but are calculated and used in different ways.
Difference GDP GNP

Stands for Gross Domestic Product Gross National Product

Definition An estimated value of the total worth An estimated value of the total worth
of a country’s production and services, of production and services, by
within its boundary, by its nationals citizens of a country, on its land or on
and foreigners, calculated over the foreign land, calculated over the
course on one year. course on one year.

Formula for Calculation GDP = consumption + investment + GNP = GDP + NR (Net income inflow
government spending exports from assets abroad or Net Income
imports). Receipts) - NP (Net payment outflow
to foreign assets).

Uses Business, Economic Forecasting. Business, Economic Forecasting.

Application (Context in To see the strength of a country’s local To see how the nationals of a country
which these terms are economy. are doing economically.
used)

Layman Usage Total value of products & Services Total value of Goods and Services
produced within the territorial produced by all nationals of a
boundary of a country. country (whether within or outside
the country).

Country with Highest Per Qatar ($102,785) Luxembourg ($45,360).

Capita (US$)

Country with Lowest Per Malawi ($242). Mozambique ($80

Capita (US$)

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Question:What problems does the underground economy pose for GDP measurement ? Exam-
2013
Question:What does the cpi measure? How is the cpi different from the GDP measurement.
Exam-2013
CPI Measuer:
A consumer price index (CPI) measures changes in the price level of a market basket of
consumer goods and services purchased by households. The CPI is a statistical estimate constructed
using the prices of a sample of representative items whose prices are collected periodically.

Cpi Different From The GDP Measuremen:

Although at first glance it may seem that CPI and GDP Deflator measure the same
thing, there are a few key differences. The first is that GDP Deflator includes only domestic goods and
not anything that is imported. This is different because the CPI includes anything bought by
consumers including foreign goods. The second difference is that the GDP Deflator is a measure of the
prices of all goods and services while the CPI is a measure of only goods bought by consumers.
Or
1. The GDP deflator measures a changing basket of commodities while CPI always indicates the price of
a fixed representative basket.
2. GDP deflator frequently changes weights while CPI is revised very infrequently.
3. CPI will consider imported goods because they are still considered as consumer goods while GDP
deflator will only contain prices of domestic goods.

Question:Describe the major problem of CPI measurement. Exam-2013

Problem of CPI Measurement:

It measures the cost of private goods and services only.

 It does not include the cost of public goods and services.
 It is the average price of a basket of goods (about 100,000 plus items) which are most
commonly used by the average consumer.
 But the goods in that basket it is always a few years old since it takes time to include new
goods (which consumers have started to use) and eliminate the old ones (which consumers
have stopped using.)
 For example: At exactly what stage should the VCR go out of the basket and the DVD player
comes in.
 Thus there is a logistical time lag between switching between old and new goods in the basket.
 The very question of product maturity is a complicated one.
 Quality improvements and how it positively affects the consumer's lifestyle cannot be taken
into account.
 For example: How do we quantitatively measure the higher level of convenience of a cell phone
versus land line phones.
 To extend on this line of reasoning again, how do we measure the convenience of a standard
cell phone with the new ones with a web browser?
 CPI cannot account for the quality difference in similar goods between a high end stores like
Macy's versus Sam's club.
Question:What is meant by multiplier? Exam- 2014
Definition of multiplier:
A multiplier is the factor by which gains in total output are greater than the change in spending
that caused it. It is usually used in reference to the relationship between investment and total national
income. The multiplier theory and its equations were created by british economist john maynard
keynes.

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Question:Graphically explain the circular flow of national income in a simple two sector
economy Exam- 2014
Question:Show the circular flow of national income for the three sector model and derive the
equation of natinal income from there. Exam-2013

Question:Compare among the methods of measuring national income. Exam- 2014

Question:Describe the simple Keynesian model for the determination of national income with
the help of expenditure method. Exam- 2014
Question:Discuss how equilibrium national income is determined in a simple Keynesian tow
sector economy. Exam-2012
Question:What are the problems of measuring national income. Exam-2011

Reference:
[1]http://www.investopedia.com/ask/answers/030415/what-functional-difference-
between-gdp-and-gnp.asp
[2]http://www.economicsdiscussion.net/firm/equilibrium-of-firm-and-industry-
definitions-conditions-and-difficulties/7225
[3]Economics Book Paul A. Samuleson.
[4] http://www.economicsonline.co.uk/Business_economics/Monopoly.html

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Chapter
7
Budgets of
Bangladesh

Important Question:

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Chapter7:Budgets of Bangladesh

Question: Define budget Distinguish between revenue and development budget. Exam-2012
Budget:
The core of the budget is called the Annual Financial Statement. This is the main budget document
Or
A budget is a quantitative expression of a plan for a defined period of time. It may include planned
sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows. It
expresses strategic plans of business units, organizations, activities or events in measurable terms.

Question: What are the differences between revenue budget and capital budget? Exam-
2014
Question: What is budget? Distinguish between revenue budget and capital budget. Exam-
2011
Revenue Budget:
This consists of the revenue receipts of the government (tax revenues and other
revenues) and the expenditure met from these revenues. Tax revenues comprise proceeds of taxes and
other duties levied by the Union. Other revenues are receipts of the government mainly consisting of
interest and dividend on investments made by the government, and fees and receipts for other
services rendered by the government.
Capital Budget:
This consists of capital receipts and payments. It also incorporates transactions in the public
account. Capital receipts are loans raised by the government from the public which are called market
loans, borrowings by the government from the Reserve Bank and other parties through sale of
treasury bills, loans received from foreign bodies and governments, and recoveries of loans granted by
the central government to state and union territory governments and other parties.

Question: Distinguish between direct tax and indirect tax. Exam-2011

Tax:
A tax (from the Latin taxo) is a financial charge or other levy imposed upon a taxpayer (an
individual or legal entity) by a state or the functional equivalent of a state to fund various public
expenditures.[1] A failure to pay, or evasion of or resistance to taxation, is usually punishable by law.
Different between Direct and indirect tax
BASIS FOR
DIRECT TAX INDIRECT TAX
COMPARISON

Meaning Direct tax is referred to as the tax, Indirect Tax is referred to as the tax, levied on a
levied on person's income and wealth person who consumes the goods and services and
and is paid directly to the government. is paid indirectly to the government.

Burden The person on whom it is levied bears The burden of tax can be shifted to another
its burden. person.

Types Wealth Tax, Income Tax, Property Tax, Central Sales tax, VAT (Value Added Tax), Service
Corporate Tax, Import and Export Tax, STT (Security Transaction Tax), Excise Duty,
Duties. Custom Duty.

Evasion Tax evasion is possible. Tax evasion is hardly possible because it is

included in the price of the goods and services.

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BASIS FOR
DIRECT TAX INDIRECT TAX
COMPARISON

Inflation Direct tax helps in reducing the Indirect taxes promotes the inflation.
inflation.

Levied on Persons, i.e. Individual, HUF (Hindu Consumers of goods and services.
Undivided Family), Company, Firm
etc.

Nature Progressive Regressive

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Chapter
8
Development
Planning in
Bangladesh

Important Question:
Question:Define aggregate output. Exam-2013

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Question:Define aggregate output. Exam-2013

Aggregate Output:
Aggregate Output is the total amount of output produced and supplied in the
economy in a given period. Aggregate Income is the total amount of income received by all factors
of production in an economy in a given period.

Aggregate income:
Aggregate income is the total of all incomes in an economy without adjustments
for inflation, taxation, or types of double counting. Aggregate income is a form of GDP that is equal
to Consumption expenditure plus net profits. 'Aggregate income' in economics is a broad
conceptual term.

Question: State the objectives and core targets of the Sixth Five-Year plan of Bangladesh. Exam-
2012
Over the past 40 years since independence, Bangladesh has increased its real per
capita income by more than 130 percent, cut poverty rate by sixty percent, and is well set to achieve
most of the millennium development goals. Some of the underlying specific achievements include,
reducing total fertility rate from 7.0 to 2.7; increasing life expectancy from 46.2 years to 66.6 ;
increasing the rate of economic growth from an average rate of 4% in the 1970s to 6% in the 2000s;
increasing the savings and investment rates from below 10 percent each in the 1970s to 24 percent
(investment rate) and 30 percent (savings rate) in FY10; achieving gender parity in primary and
secondary education; and more than tripling of the production of rice (from 10 million tonnes in FY73 to
32 million tonnes in FY10) thereby achieving near self-sufficiency in normal production years. The
economy today is lot more flexible and resilient, as indicated by the ability to withstand the global
financial crisis with minimum adverse effects. Bangladesh also is now much more capable of handling
natural disasters with minimum loss of life. Bangladesh achieved this remarkable progress with
development despite numerous internal and external constraints
Question: What are the major sources of revenue and major heads of expenditure of the
government of Bangladesh? Exam-2011

Revenue
 Revenue from fiscal monopolies (liquor and gaming profits) are now considered taxes. They
were previously classified under investment income.
 The category "Privileges, licenses and permits" was deleted. Items such as business licences,
motor vehicle licences and all local government licences and permits are treated as taxes while
most personal paid licences are classified as sales of goods and services.
 Grants in lieu of taxes, which were treated as transfers are now classified under property and
related taxes.
 The category "Natural resource revenue" was deleted. Natural resource royalties are now
considered investment income while mining and logging taxes are now allocated to the income
taxes category.
 The tax category "Health and social insurance levies" has been split into two new non-tax
categories, namely: "Health insurance premiums" and "Contributions to social insurance
plans."

Own source revenue

 Personal income tax
 Corporation income tax
 Mining and logging taxes
 Mining and logging taxes
 Taxes on payments to non-residents
 General sales tax

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 Alcoholic beverages taxes –

 Tobacco tax –
 Amusement tax
 Gasoline and motive fuel taxes
 Customs duties
 Remitted gaming profits
 Air transportation tax
 Miscellaneous consumption taxes –
 Property and related taxes
 Real property taxes
 Lot levies
 Lot levies
 Capital taxes

Expenditures
 The function "Transfers to own enterprises" was deleted. Services previously classified under
that heading are now assigned to other functions, as appropriate.
 A new recreation and culture sub-function called "Broadcasting" was created to include
cultural services of the Canadian Broadcasting Corporation (CBC).
 Evolution in the field of social services has necessitated new sub-groupings of services
assigned to the function "Social services."
 Employer contributions to employee benefit plans (the Supplementary Labour Income (SLI)),
the operation and maintenance of government buildings and provision of computer services to
various ministries and crown corporations are now assigned to the function to which they
relate rather than being totally assigned to the function "General services" per the previous
edition of the manual.
 Grants in lieu of taxes are now functionalized. They were previously considered general
purpose transfers.
Source of Expenditures:
 Executive and legislature
 General administration
 Protection of persons and property
 National defense
 Courts of law
 Correction and rehabilitation services
 Policing
 Firefighting
 Regulatory measures
 Health
 Social services

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About the Author

Engr. Abu Saleh Musa Miah(Abid) was born in Payrabond,Rangpur, Bangladesh in 1992. He
received the B.Sc.Engg. and M.Sc.Engg degree with Honours in Computer Science and
Engineering consequently in 2014 and 2015 from University of Rajshahi, Currently he is working
towards the Ph.D degree in “Signal Processing and Computational Neuroscience Lab” in the
Department of Computer Science and Engineering, University of Rajshahi, Bangladesh.

His research interests include Brain Computer Interfacing, Sparse Signal Recovery/Compressed
Sensing, Blind Source Separation, Neuroimaging, and Computational and Cognitive Neuroscience.

He is working from 2016 at fiverr, freelancer.com, upwork as a content writer, technical writer,
educational writer, thesis proposal writer, Thesis paper writer, motivation letter writer, web
developer.
He was a Master Trainer of “Skills development for mobile game and application
project(SDMGAP)” project of ICT Ministry during 2018-19.
He also a Lecturer at Bangladesh Army University of Science and
Technology(BAUST)www.baust.edu.bd. Department of Computer Science and Engineering.
I participated several scientific and engineering conference in National and International Level.

THE END

RAJSHAHI ENGINEERING SCIENCE AND TECHNOLOGY COLLEGE(RESTC) WWW.RESTC.EDU.BD ABU SALEH MUSA MIAH (ABID)
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