Capacity Output
The real output that the economy could produce if all resources were used to their maximum.
Typically the capacity output level is higher than the output level that a nation's economy tends to produce in the long-run, because all resources are not always utilized. For example, taxation of income induces workers to supply fewer labor service than they would have otherwise. As a consequence, the total output of firms tends to be lower than the capacity level.
Typically the capacity output level is higher than the output level that a nation's economy tends to produce in the long-run, because all resources are not always utilized. For example, taxation of income induces workers to supply fewer labor service than they would have otherwise. As a consequence, the total output of firms tends to be lower than the capacity level.