The deductive method is simple because it is analytical. Content Guidelines 2. For example, an economist who asks if a government program of public works spending will stimulate a region’s economy will proceed to research the issue, collect and analyze data, and based on conclusions… Therefore, induction is the process of arriving at a generalization based on a particular observed fact. Verification consists in confirming whether the hypothesis is in agreement with facts. It holly depends on making or conducting research from historical information. But other things seldom remain the same which tend to refute theories. In case inductive method is unable to produce good results, the deductive method needs to rescue us. The verification of theories, generalisations or laws in economics is based on observation. In this method changing economic phenomena can be analyzed based on experiences, conclusions can be drawn and appropriate remedial measures can be taken. Now-a-days, economists are combining induction and deduction in their studies of economic phenomena in various fields for arriving at generalisations from observed facts and for the indirect verification of hypotheses. To be fruitful for enquiry, the assumption must be general. This supposition was wrong. In this, changing economic phenomena can be analysed on the basis of experiences, conclusions can be drawn, and appropriate remedial measures can be taken. Induction is actual and synthetic because it deals with the subject as a whole and does not divide it into parts artificially. Induction helps in future enquiries. However, the inductive method is not without its weaknesses which are discussed below. Inductive methods require the use of statistical methods. The best example of inductive reasoning in economics is the formulation of the generalization of diminishing returns. Induction “is the process of reasoning from a part to the whole, from particulars to generals or from the individual to the universal.” Bacon described it as “an ascending process” in which facts are collected, arranged and then general conclusions are drawn. All observed dogs have fleas 2.3. Much research in fields as diverse as economics, physics, and biology make use of both deductive and inductive reasoning. Inductions, specifically, are inferences based on reasonable probability. Engel propounded the law only after he had studied several family budgets in Austria. It helps in future inquiries. When economic analysis is conducted through deductive method, the economic analyst has to proceed from general to particular. It means we proceed here from the particular to the general. The historical or inductive method expects the economists to be primarily an economic historian who should first collect material, draw generalizations, and verify the conclusions by applying them to subsequent events. DEDUCTIVE, INDUCTIVE, AND ABDUCTIVE REASONING. (2) The formulation of assumptions on the basis of which the problem is to be explored. As a matter of fact, deduction and induction are the two forms of logic that help to establish the truth. The deductive method derives new conclusions from fundamental assumptions or from truth established by other methods. As an example, the law of diminishing returns and the law of equimarginal utility are relevant to almost all persons as well as to all places. This aids noteworthy improvements in the application of induction for analyzing economic problems of a wide range. The inductive method makes use of the statistical method. Every hypothesis is based on a set of assumptions. Prohibited Content 3. Before publishing your articles on this site, please read the following pages: 1. But unlike the natural sciences, there is little scope for experimentation in economics because economics deals with human behaviour which differs from person to person and from place to place. or narrow relating to an industry. Inductive methods require the use of statistical methods. In the end, they have one very important thing in common: they’re both wrong. Despite these merits, much criticism has been levelled against this method by the Historical School which flourished in Germany. For instance, India and America differ in their factor endowments. It involves a detailed and painstaking process of collection, classification, analysis, and interpretation of data on the part of trained and expert investigators and analysts. The induction is experimental including clear and substantial advantages in economic investigations and research. Inductive method (Inductive Reasoning) adopts statistical and mathematical methods for getting conclusions regarding economic phenomena. First, the internal angles of a triangle are added and it is noted that they result in 180º. Therefore, it would be wrong to apply the industrial policy which was followed in America in the late nineteenth century to present day India. In reality, both deduction and induction are related to each other because of some facts. It may require a large number of observations if it can yield a valid economic generalization. Inductive reasoning is a type of logical thinking that involves forming generalizations based on experiences, observations, and facts. Thus true progress in economic enquiries can be made by a wise combination of deduction and induction. Inductive Methods. Some of the recent macroeconomic researches like the nature of consumption function describing the relationship between income and consumption, acceleration principle describing the factors which determine investment in the economy have been obtained through the use of induction or empirical method. Methods of Economic Analysis: An economic theory derives laws or generalizations through two methods: (1) Deductive Method and (2) Inductive Method. Since it is drawn from a particular historical situation, it cannot be applied to all situations unless they are exactly similar.