Saturday, February 14, 2009

Menger on Effective and Latent Requirements

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Foresight

Requirements, again, are the quantity of goods necessary for satisfying a man's needs during the time period of his plans. Let's say a man requires 6 cups of lemonade to satisfy his anticipated refreshment needs over the next week. Based on that requirement, he has a further requirements for higher order goods necessary to make the lemonade: 4 cups of water, 1 cup of lemon juice, and 1 cup of sugar. Unfortunately he only has 1/2 cup of lemon juice, and because of a food safety scare, he is unable to obtain any more. Since, with his limited supply of lemon juice he is only capable of making 3 cups of lemonade, he may only effectively require 2 cups of water and 1/2 cup of sugar; thus these quantities are called his effective requirements. His latent requirements of the higher order goods are still the first quantities mentioned, however, because, if possible he still would like his 6 cups of lemonade.

Next in this series: Menger on Foreseeing Requirements

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