When is an economy considered to be operating at full efficiency?

An economy is considered to be operating at full efficiency when it is situated on the production possibilities frontier (PPF). The PPF represents the maximum possible output combinations of two goods or services that an economy can achieve given its resources and technology. Being on the frontier indicates that resources are being utilized in the most efficient manner possible—meaning that all available resources are fully employed, and production is optimized.

If the economy is on the PPF, it implies that any attempt to produce more of one good would require reducing the production of another good. This concept ties into the principle of opportunity cost, where resources are scarce, and utilizing them for one purpose means they are not available for another. When an economy is at this point, it achieves full efficiency, as there are no idle resources or inefficiencies in production.

The idea that an economy can maximize resource allocation to all goods is somewhat related but not quite a statement of full efficiency, as it could imply multiple methods of allocation, some of which might not be efficient. Thus, the clear marker of full efficiency is represented by being on the production possibilities frontier.