III. References: Economics, Taxation & A R, by: Manapat, p. 28-29 Applied Economics, by Diwa, p. 12-13 Concept Note # 11 A. IMPORTANCE OF PPF A. PPF can help introduce many of the most basic concepts of economics. 1. It illustrates the definition of economics as the science of choosing what goods to produce. 2. It provides a rigorous definition of scarcity. It shows the outer limit of producible goods dictated by the law of scarcity. . Scarcity is a reflection of the limitation on our living standards imposed by the PPF. 3. It can also illustrate three basic problems of economic life - what, how & for whom. 4. It can also illustrate the general point that we are always choosing among limited opportunities. B. As a result of increasing inputs of capital & labor & of improving technology. the PPF shifts out. A nation can have more of all goods as its economy grows. Poor countries must devote most of their resources to food production. while rich countries can afford more luxuries as productive potential increases. C. OPPORTUNITY Cost is the value of what is foregone in order to have something else. This value is unique for each individual. The opportunity of an individual's decisions is determined by his/her needs, wants, times & resources (income). This is important to the PPF because a country will decide how to best allocate its resources according to its opportunity cost. IV. Question/Activity Can you determine the basic problems of economic life? 1. How would you indicate the importance of the PPF in your life & family