Efficiency is one of the central concepts of economics. Efficiency means absence of waste, or using the economy's resources as effectively as possible to satisfy people's needs and desires. More specifically, the economy is producing efficiently when it cannot produce more of one good without producing less of another good- that is, when it is on the Production -Possibility Frontier (PPF)
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The Production- Possibility Frontier (or PPF) shows the maximum amounts of production that can be obtained by an economy, given the technical knowledge and quantity of inputs available. The PPF represents the menu of choices available to society.

To illustrate this, let us assume that only two economic goods are to be produced- say, guns to represent the military spending and bread to represent the civilian needs. Suppose that with the available resources, our economy can produce a maximum of either 5,000 Kgs of bread or 15,000 guns. Thus there are two extreme possibilities. In between are many others- if we are willing to give up some bread, we can have some guns. If we are willing to give up still more bread, we can have still more guns.

This schedule of possibilities is given in Table-1. Combination F shows the extreme of all bread and no guns; while A depicts the opposite extreme, where all resources go into guns and no bread. In between- at E, D, C and B- increasing amounts of bread are given up in return for more guns. Resources mean land, building, machinery, labour and capital.

From the data in Table-1, we can prepare the graph as shown above., and draw the curve showing the PPF.

Efficiency

Operating on the frontier implies that the economy is efficient. Any point outside the frontier is in Impossible region and hence not viable. This frontier shows the schedule of choices along which society can choose to substitute guns for bread. Points outside the frontier,( say I ) , are infeasible or unattainable. Any point inside the curve, ( say U ) indicates that some resources are unemployed or not used in the best possible way. Productive Efficiency occurs when society cannot increase the output of one good without cutting back on another good.. An efficient economy is on its PPF

Unemployed resources and ineffiency

Even casual observers of modern life know that society has unemployed resources in the form of idle workers, idle factories, unutilised minerals and raw materials, idle land, unused brain etc. Such an economy is not on its PPF , but well inside it. This is represented by point U, where the society is producing only 2 units of bread and 6 units of guns. Some resources are unemployed. By utilising them, we can move from point U to point D, thereby producing more bread and more guns, and improving the economy's efficiency. Better efficiency means higher standard of living for its citizens.An economy inside the PPF is inefficient. That is, it is not using its resources to the maximum.
Business cycle depressions, strikes, political changes, agitations, internal and external fightings, natural calamities etc. will further push the economy inside its PPF. That is why we stressed the importance of internal and external peace for a developing country, in the beginning itself.

Putting PPF to work

In addition to explaining efficiency, 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. PPF 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. PPF can also illustrate the three basic problems of economic life- what, how and for whom.
4. PPF can also illustrate the general point that we are always choosing among limited opportunities.

As a result of increasing inputs of capital and labour and 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.

For more details, please refer the book Economics by Paul A. Samuelson & William D. Nordhaus.