1. a. Outline some of the features of the “Austrian School” of economics.

b. State and explain briefly the contributions of Carl Menger.

a. Features of the Austrian School of Economics:

Subjective Value Theory: The Austrian School emphasizes subjective value theory, which posits
that value is determined by individuals' preferences and subjective assessments rather than
objective factors. This theory underpins Austrian analyses of consumer behavior, price
formation, and market dynamics.

Methodological Individualism: Austrian economists focus on the actions and choices of

individual actors as the primary unit of analysis in economic theory. They believe that complex
economic phenomena emerge from the interactions of individuals pursuing their own goals and
preferences.

Emphasis on Methodology: The Austrian School places a strong emphasis on methodological

individualism, methodological subjectivism, and methodological dualism. These methodological
principles guide Austrian economists in their analysis of economic phenomena, emphasizing the
importance of understanding human action and subjective perceptions.

Dynamic Analysis: Austrian economists often employ dynamic analysis to study the process of
economic change and adjustment over time. They highlight the role of entrepreneurship,
uncertainty, and market competition in driving innovation, resource allocation, and economic
growth.

Focus on Capital and Production: The Austrian School pays particular attention to the role of
capital and production in the economy. Austrian economists emphasize the importance of capital
accumulation, investment decisions, and capital structure in shaping long-term economic
outcomes.

Critique of Interventionism: Austrian economists are known for their skepticism towards
government intervention in the economy. They argue that interventions such as price controls,
regulations, and monetary manipulation can distort market signals, disrupt the coordination of
economic activity, and lead to unintended consequences.

b. Contributions of Carl Menger:

Carl Menger, an Austrian economist and one of the founders of the Austrian School, made
several significant contributions to economic theory:

Subjective Value Theory: Menger developed the theory of subjective value, which challenged
the classical labor theory of value. He argued that the value of goods and services is determined

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by individuals' subjective preferences and marginal utility, rather than by the labor embodied in
them. This theory laid the foundation for the Austrian School's approach to value and price
theory.

Theory of Marginal Utility: Menger introduced the concept of marginal utility, which states that
the value of an additional unit of a good or service decreases as the quantity consumed increases.
This theory explains consumer behavior, price formation, and the law of diminishing marginal
utility.

Methodological Individualism: Menger emphasized the importance of methodological

individualism in economic analysis, arguing that economic phenomena should be explained in
terms of the actions and choices of individual actors. He rejected the notion of abstract social
laws governing economic behavior and advocated for a more bottom-up approach to economic
theory.

Origin of Money: Menger's work on the origin of money provided a seminal explanation for the
emergence of money as a medium of exchange in market economies. He argued that money
evolved spontaneously from the barter process as individuals sought to overcome the limitations
of direct exchange.

Overall, Carl Menger's contributions to subjective value theory, marginal utility, methodological
individualism, and the origin of money laid the groundwork for the development of the Austrian
School of Economics and significantly influenced the trajectory of economic thought in the late
19th and early 20th centuries.