METHODS OF ECONOMICS

METHODS OF ECONOMICS 

1. DEDUCTIVE METHOD(DEALS WITH MACRO TO MICRO ECONOMIC)

2. INDUCTIVE METHOD(DEALS WITH MICRO TO MACRO ECONOMIC)

  Let's we start with the first type deductive method of economics .

* DEDUCTIVE METHOD OF ECONOMICS : 

          It is also known as Method of logical reasoning. According to Wilson Gee," By deductive method is meant the reasoning from general to particular or universal to Individual ." Macro economics theory are based on a bond deductive or scientific method. This is the old, traditional method of studying economics and all classical and neo-classical economists like Adam Smith , Ricardo , J.S Mill, Marshall etc. had conducted their stories and developed various theories of economics by this method.

        Under this method, we conduct our study from general to particular . We start with an obvious fact or an axiom and proceed to analyse it under different conditions. FOR EXAMPLE - LET US TAKE THE LAW OF DEMAND .  It is obvious fact that demand decreases by an increase in price and vice versa . This will be our axiom.

       This method can be both mathematical and non-mathematical and we use both of them in economics. On recent years, as has already been pointed out , there is increasing use of mathematical method of studying economics.

       The main advantage of this method is that without spending a lot of time and money we can use this method , because it is basically an intellectual exercise. However , it is essential that analyst should be aware, should have a sharp mind and only then correct conclusion can be drawn. 

       The main drawback of this method is that any error in assumptions or a fact at the preliminary stage results in a cumulative error and this can make our complete analysis misdirected and faulty . Another limitation is that , since it is only a mental or intellectual exercise , it is many a times not easy to verify whether the conclusions are realistic or not. 

*INDUCTIVE METHOD OF ECONOMICS : It is also known as HISTORICAL COUNTRY ANALYTICAL OR REALISTIC METHOD. According to WILSON GEE , " Inductive method is the process of reasoning from particular to general or from individual to universal ." The Inductive method is also an important method of economics studies and it's use is increasing in modern time. 

       As the availability of statistical data increases , there is greater scope and opportunity to se this method. Under this method the direction of our study is from "PARTICULAR TO GENERAL ". It means that we study a fact under different conditions and circumstances and on the basis of these specific observations , we arrive at a general rule. We collect data from different situation and by analysis of these data derive general conclusion. FOR EXAMPLE - LET US AGAIN TAKE THE LAW OF DEMAND.  For Inductive analysis of this law, we collect data on quantity demanded at different prices, from different markets.

      From this varied data , we arrive at the common ruke that there is an inverse relationship between price and quantity demanded. Thus , we move from particular to general .

     Inductive Method has several advantages firstly, since it is based on facts ,it is more factual and not imaginary . Secondly , the use of advanced statistical methods brings out many such facts , which can not be found by a mere intellectual exercise. In this modern computer era , this method is more useful because with the help of a computer many complicated data can be easily analysed.

CONCLUSION : In this way , we find that both methods have their own advantages and disadvantages . Deductive method has a risk of becoming unrealistic and inductive method has a risk of wrong interpretation . Analysis of data may brings out correct facts but unless they are correctly interpreted , truth does not come out. It can be said that both the methods are complementary to each other. SCHMOLLER'S  STATEMENT IS THE MOST APT DESCRIPTION OF THEIR COMPLEMENTARITY . HE SAID , " INDUCTIVE AND DEDUCTIVE ARE BOTH NEEDED FOR SCIENTIFIC THOUGHT AS THE LEFT AND RIGHT FEET ARE BOTH NEEDED FOR WALKING. "

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