Carl Menger Carl Menger published his Principles of

Carl Menger • Carl Menger published his Principles of Economics in 1871 • Menger is also regarded as a marginal economist • His thought on various aspects are as follows: GOODS: • Menger made a systematic discussion on different types of goods available in an economy • Menger classified goods according to the directness with which they satisfied human wants • Goods of the first order satisfy human wants immediately • Goods of the second order and higher order satisfy human wants only indirectly

Contd. • Goods of the first order are mostly consumption goods • Whereas , goods of the second order or higher orders are capital and production goods • He underlined the conditions for a thing to be regarded as a good 1 - There must be a human need 2 -The good must be able to satisfy the need 3 -The consumer must recognize the want satisfying capabilities of the good 4 -The individual has the power and ability to apply the good to the satisfaction of the one

Contd. • There are some goods which are scarce in supply in relation to their demand. They are called as economic goods • However, when the goods are plentiful in supply in relation to demand, they are called non economic or free goods • Some goods are known as complementary goods VALUE : • According to Menger the value of goods arises from their relationship to our needs, and it is not inherent in the goods themselves • Value will differ as the relationship differs

Contd. • Goods which are very essential for life would be consumed first and goods of lesser necessities would be consumed later • According to Menger , value is not dependent on the total utility, but on the lowest utility one derives from the good • To discover the value of a good we have to measure the satisfaction which will have to be sacrificed, if that portion were deducted from the total quantity • This means value depends on the marginal utility of a good • According to Menger subjective value is the basis of price determination • Menger has explained the law of equi marginal utility with the help of following chart

Contd.

Contd. • In the above chart, ten goods are arranged in a descending order of importance to the consumer • Good I is having the highest utility and good X having the lowest • Good I may be regarded as food • Every column of the chart shows the units of satisfaction which the consumer can get by consuming the successive units of commodity • The consumer with given income will start purchasing the first good which is a sheer necessity (food) • The consumer spends his money in such a way that marginal utilities derived from the purchase of different goods will be equal

Contd. • This law reveals that given the scarce means, the individual will arrange his various consumptions in such a way that at the margin , satisfactions are all equal CRITICISMS: 1 - Menger did not give us a satisfactory theory of price 2 -He neglected the role of diminishing returns in the explanation of supply 3 -The classification of goods of different orders is not scientific and precise