Potential Output describes what an economy can produce with its current technology, equipment, natural resources, and willing workers.  When an economy produces at its potential output, it operates at full employment.

Potential output is the target for good economic performance.  It need not be the absolute maximum that could be produced.  For example, it might be possible to increase production by forcing more people to work or to force longer hours on the people already working.  That outcome would not be desirable, of course.  Potential output represents the full use of resources consistent with the voluntary choices made by firms and workers in the economic system.