Teacher License – Administrative Sciences Complete Review Guide 2026–2027

4. In a capitalist system markets and prices decide and ownership is private; in a socialist system the state plans production and ownership is public; in a mixed system the private and public sectors coexist.
5. Law of demand: other things equal, quantity demanded moves inversely with price. Law of supply: quantity supplied moves in the same direction as price.
6. Determinants of demand: income, prices of substitutes and complements, tastes, number of buyers and expectations. Determinants of supply: production costs, technology, prices of other goods, number of sellers and expectations.
7. Market equilibrium is the price at which quantity demanded equals quantity supplied. A price above it creates a surplus; a price below it creates a shortage.
8. Price elasticity of demand = % change in quantity demanded ÷ % change in price. Demand is elastic if the absolute value exceeds 1, inelastic if below 1 and unit elastic if equal to 1.
9. Factors behind elasticity of demand: availability of substitutes, necessity versus luxury, the share of income spent on the good, and the time period.
10. Markets: perfect competition (many sellers, identical goods, free entry), monopoly (one seller, entry barriers), monopolistic competition (differentiated goods, free entry) and oligopoly (a few interdependent producers).
11. National income is measured three ways: output (value added), income (sum of factor earnings) and expenditure (consumption + investment + government spending + net exports).
12. GDP measures the final goods and services produced within a country's borders in a period; GNP measures the output of a country's citizens wherever they are.
13. Types of unemployment: frictional, structural, cyclical and seasonal. Economic effects include lost output and lower incomes; social effects include poverty and family strain.
14. Inflation is a general and sustained rise in the price level. Causes: demand-pull, cost-push and growth in the money supply. Price index = (sum of current-year prices ÷ sum of base-year prices) × 100.
15. Contractionary fiscal policy (lower spending or higher taxes) fights inflation; expansionary policy (higher spending or lower taxes) fights recession and unemployment. Monetary policy is run by the central bank.
16. Adam Smith's absolute advantage: a country specialises in the good it makes at lower cost. David Ricardo's comparative advantage: it specialises in the good with the lower opportunity cost.
17. The balance of payments records all economic transactions between a country and the rest of the world in a period, with the current, capital and financial accounts. Exports are credits and imports are debits.
18. International bodies: the World Trade Organization sets trade rules and settles disputes, the IMF addresses balance of payments problems and supports monetary stability, the World Bank finances development, and the Gulf Cooperation Council is an economic and political bloc of six states.

Common mistakes in this chapter

• ✕ Mixing up a change in quantity demanded with a change in demand: a change in the good's own price moves along the curve, while a change in income, tastes or other prices shifts the whole curve.
• ✕ The negative sign of price elasticity of demand: whether demand is elastic or inelastic is judged by the absolute value, not by the sign.
• ✕ Reading elasticity above 1 as inelastic: above 1 means elastic demand, below 1 means inelastic.
• ✕ Confusing frictional, structural and cyclical unemployment: frictional is movement between jobs, structural is a mismatch between skills and jobs, cyclical comes from a downturn.
• ✕ Confusing demand-pull and cost-push inflation: the first comes from higher total spending, the second from higher production costs such as wages and raw materials.
• ✕ Confusing fiscal and monetary tools: taxes and government spending are fiscal; interest rates, reserve requirements and open market operations are monetary.
• ✕ Confusing absolute and comparative advantage: comparative advantage rests on opportunity cost, and a country can gain by specialising in a good where it has no absolute advantage.
• ✕ Confusing a balance of payments deficit with a trade deficit: the trade balance covers goods only, while the balance of payments is wider and includes the current, capital and financial accounts.