Methods of Economic Analysis

Methods of Economic Analysis

In economics, broadly we make use of two methods.

(i)       Deductive method and

(ii)    Inductive method

The deductive method is also known as abstract method or analytical method. This method is based on a priori reasoning and conclusions are drawn from certain fundamental assumptions. Deduction method was very popular among the Greeks. Here is an example :

All men are mortal Socrates is a man Socrates is mortal The deductive method moves from the general assumption to the specific application.

Ricardo, a classical economist, made use of the deductive method.

The inductive method moves from specific observations to generalization. It was Francis Bacon who advocated inductive method in scientific enquiry.

None of the above methods provides satisfactory system for solution of problems. So Darwin, who is famous for this theory of evolution, by introducing the concept of hypothesis, has combined deductive and inductive methods.

The important elements of Darwin's deductive-inductive method

are

1          Identification of a problem

2          formulation of hypothesis (a hypothesis is an assumption or an intelligent guess)

3          collection, organization and analysis of data

4          formulation of conclusions

verification, rejection or modification of the hypothesis after testing it.

In the past, there was a debate among economists about the question which is the best method ? inductive or deductive ? But the controversy is not there now. Today, economists feel that both induction and deduction are necessary for the science, just as the right and the left foot are needed for walking.