Economics: What It Is, Why It Matters, and How It Shapes Our Lives

Let's start with something simple.

Think about your own life for a moment. You have a certain amount of money — maybe your salary, your allowance, or your savings. But you have many, many things you want to spend it on — food, clothes, rent, transportation, entertainment, and more. You cannot afford everything. So you have to make choices about what is most important and what can wait.

That process of making choices with limited resources — that is essentially what economics is about. Just scaled up to cover not just one person, but an entire family, an entire city, an entire country, and the whole world.

Formally, economics is the systematic study of how limited resources are managed, and how income and employment are determined within a society. The word "Economics" itself comes from the Greek word "Oikonomia" — which roughly translates to the management of a household. Over time, that concept expanded from managing a single household to managing entire national and global economies.

Different economists have defined it in different ways. Adam Smith — widely considered the founding father of modern economics — described economics as the science of wealth, focused on how wealth is created and distributed across society. Professor Alfred Marshall added a more human dimension, describing economics as the study of ordinary human activities and the ways people earn and use the things that contribute to their material wellbeing.

One important clarification — not everything in life is part of economics. Only activities that involve money or resources are considered economic events.

Here is a simple example. Shakib Al Hasan plays cricket for Bangladesh and gets paid for it. That is an economic activity — money is involved. But when you play cricket with your friends at the local field on a Sunday afternoon for fun — no money changes hands, no resources are allocated, so that is not an economic activity. The presence of monetary transaction or resource allocation is what makes something part of economics.

Economics is broadly divided into two major branches. Understanding both gives you a complete picture of how economies work at every level.

Microeconomics

The word "micro" comes from the Greek word "Mikros" meaning very small. And that is exactly what microeconomics focuses on — the small, individual units of an economy.

Microeconomics studies the behavior and decisions of individual people, households, and businesses. It asks questions like — how does one person decide what to buy with their income? How does a single company decide how much to produce and what price to charge? What happens to the price of rice when there is a flood that destroys crops?

Personal income, individual savings, the profits of a single business, the price of a specific product, the wages in a particular industry — these are all examples of microeconomic topics. The scope of microeconomics is narrow and detailed. It gives you a partial, close-up picture of specific parts of the economy rather than the whole thing.

Macroeconomics

"Macro" comes from the Greek word "Macros" meaning large or overall. Macroeconomics is the big picture view — it studies the economy as a whole rather than looking at individual pieces.

Instead of asking what one person earns, macroeconomics asks what the entire nation earns. Instead of looking at the price of one product, it looks at the overall price level across the whole economy. Instead of studying one company's production, it studies total national production.

National income, total national savings, total investment, overall employment rates, inflation — these are the concerns of macroeconomics. It gives you the complete picture of a country's economic health. When you hear about GDP growth, inflation rates, or unemployment figures on the news, that is macroeconomics being reported.

Both branches are essential and deeply connected. You cannot fully understand the economy without understanding both the individual pieces and the whole system they form together.

Different countries around the world organize their economies in very different ways. Here are the four main economic systems you will encounter.

Capitalist or Free Market Economy

In a capitalist economy, individuals and private businesses have the freedom to own property, run businesses, and make their own economic decisions with minimal government interference. The government sets some basic rules and regulations, but largely stays out of economic decision-making. The primary goal of a capitalist system is profit. Competition between businesses is encouraged, and prices are determined by supply and demand in the market.

The downside of capitalism is that it tends to create income inequality — some people get very wealthy while others struggle. Germany, Hong Kong, and the United Kingdom are examples of countries with largely capitalist economies.

Socialist Economy

Socialism is essentially the opposite of capitalism. In a socialist economic system, the government owns and controls the major means of production and makes the central economic decisions. The goal is not profit but social welfare — ensuring that wealth is distributed more equally across the population. Individual freedoms in terms of business ownership are significantly restricted, and private profit-making is limited.

On the positive side, socialist economies tend to have less inequality and exploitation. Cuba, China, and North Korea are examples of countries with socialist economic systems.

Mixed Economy

A mixed economy combines elements of both capitalism and socialism. Private businesses can operate freely and make profits, but the government also plays a significant role — providing public services, regulating industries, and intervening in the economy when needed. Both public and private sectors coexist and cooperate.

The goal of a mixed economy is to achieve both profit and public welfare simultaneously. Bangladesh and India both operate under mixed economies — private enterprise drives growth, while the government ensures basic services and social protection are available.

Islamic Economy

An Islamic economy is governed by the principles of the Quran and Sunnah. In this system, interest-based transactions are strictly prohibited — as Islam forbids riba (usury or interest). All economic activities must comply with halal and haram principles. The distribution of wealth follows Islamic Shariah law, and zakat — the obligatory charitable giving — plays a central role in redistributing wealth from the rich to the poor. Worker rights and fair wages are taken very seriously. Saudi Arabia and the UAE are prominent examples of economies operating on Islamic principles.

To understand how healthy or strong a country's economy is, economists use specific measurements called economic indicators. These indicators tell you whether an economy is growing, shrinking, or staying the same. Let us look at the most important ones.

Gross National Product (GNP)

GNP measures the total monetary value of all final goods and services produced by a country's citizens and businesses — both inside the country and abroad — within a specific period, usually one year.

The key distinction of GNP is that it follows the people, not the geography. It includes the output of Bangladeshi citizens working abroad but excludes the output of foreign citizens working inside Bangladesh. So if a Bangladeshi engineer is working in Qatar and sending remittances home, their contribution counts in Bangladesh's GNP.

Gross Domestic Product (GDP)

GDP measures the total monetary value of all final goods and services produced within a country's geographic borders — regardless of whether the producers are citizens or foreigners — within one year.

GDP follows the location, not the people. It includes the production of foreign companies operating inside Bangladesh but excludes the production of Bangladeshi citizens working outside the country. GDP is the most commonly used measure of an economy's size and performance globally.

Beyond GDP and GNP, economists also track a range of other indicators including the Consumer Price Index (CPI) which measures inflation, the Producer Price Index (PPI), unemployment rates, personal income levels, personal consumption expenditure, capacity utilization, foreign investment rates, consumer confidence indexes, and trade surplus or deficit figures. Together, these paint a comprehensive picture of an economy's overall health.

This is where things get genuinely inspiring.

At the time of Bangladesh's independence in 1971, Pakistan was approximately 70% richer than Bangladesh. Today — just over 50 years later — Bangladesh is approximately 45% richer than Pakistan. Let that sink in for a moment. That is not just growth. That is a complete reversal of fortune in half a century.

How did this happen?

The transformation began taking shape in the 1980s, when the government started converting state-owned enterprises into private sector businesses, allowing market forces to drive efficiency and growth. In the 1990s, a series of important government economic decisions began to accelerate progress further.

Since 2000, Bangladesh's economy has grown at approximately 5% per year consistently. According to the Bangladesh Bureau of Statistics, in 2000 approximately 49% of Bangladeshis lived below the poverty line. By 2010, that figure had dropped to 31%. By 2022, it had fallen even further — a dramatic and meaningful improvement in the lives of millions of people.

Since 2015, the pace of growth has accelerated even more — with Bangladesh's GDP growing at 6% to 8.5% annually. The country's foreign exchange reserves reached a historic high of approximately $48 billion — the highest ever recorded in Bangladesh's history.

The COVID-19 pandemic hit economies all over the world severely. Bangladesh was among the countries that recovered most quickly, bouncing back faster than many far larger and wealthier nations. That resilience says a great deal about the fundamental strength of the economic foundations Bangladesh has been building.

Economics is not just something that happens in government offices or university lecture halls. It shapes every single aspect of your daily life — the price of your food, the job opportunities available to you, the quality of roads and hospitals in your city, and the overall standard of living you can expect.

Understanding the basics of economics — what microeconomics and macroeconomics study, what different economic systems look like, and how indicators like GDP and GNP measure national progress — gives you a framework for understanding the world around you far more clearly.

And for anyone living in Bangladesh, there is an added dimension of pride and relevance here. The economic story of Bangladesh over the last five decades is one of the most compelling development stories in modern history. A country that many once dismissed as a hopeless case has become one of the fastest growing economies in the world — and the journey is far from over.

Understanding economics means understanding that story — and understanding how to continue writing it.