Inductive Deductive Method, Business Economics Assignment Help

Business Economics - Inductive Deductive Method, Business Economics

Inductive Deductive Method

Inductive Method

Some of the laws of economics propounded on the basis of deductive logic began to be criticized as unrealistic. As such it became a practice to test deductive hypothesis on the basis of empirical evidence that gave birth to inductive method.

The inductive derives economic theories on the basis of observations and experiments. In this method detailed data are collected with regard to a certain economic phenomenon. Efforts are then made to arrive at general laws which follows from the observations and data collected.

In other words if we find that persons from A, B, C, D, E, X, Y and Z buy more at low price then we can have a law that "Demand is more cheap price and increase with a fall in price".

Inductive method was used to verify the correctness or otherwise of deductive method. The Engle's law of consumption owes its origin to this method. Prof. Engle studied the family budgets of different incomes groups and found that the higher the income, lower is the percentage that is spent on articles of food consumption.

Two outstanding examples of more inductive kind of analysis are: (i) the development of consumption functions that is the relation of income, consumption and saving (ii) the development and use of the acceleration principle in building more comprehensive theories of investment.

Inductive method is known as 'historical', 'analytical' and 'realistic' method also because this is this nearest to reality and nothing is said unless it is proved so.

Inductive kinds of analysis are- (i) the development of consumption function that is, the relation of income, consumption and saving. (ii) The development and use of the acceleration principle in building more comprehensive theories of investment.


The classical and neo-classical writers used commonly, in greater or less measure the deductive method of enquiry. This method deduces conclusions from fundamental from reasoning or axioms established by other methods. We proceed in this method process of logic is from general to particular. This method is also known as hypothetical method, abstract method, a priori method, etc. Prof. Boulding called it as intellectual experiment.

It is based on certain salient facts of human nature. For example, we perfect to buy from the cheapest market, or every consumer would like to maximize his satisfaction. Classical writers assumed-

(1) Man tries to promote his self-interest.

(2) All men try to get rich with minimum sacrifice,

(3) Law of diminishing returns operates on land,


(4) Human beings reproduce at a rate permitted by natural resources, and

Deductions as methodology in economic theory involve the following stages:

(1) Perception and exploration of a particular economic phenomenon or a problem

(2) The formulation of assumption on the basis of which the facts are to be analyzed.

(3) The process of logical reasoning whereby inferences are drawn. Inference is the process by which we arrive at conclusion from given proportions;

(4) The final step relates to the verification of conclusions arrived at. If the conclusions agree with the observed facts, the hypothesis is verified.

Deductive method is of two kinds:

(1) mathematical,

(2) Non-mathematical.

The non-mathematical method was used by the classical economists. The method used only by verbal expressions and not mathematical symbols. In 19th century, Edgework was probably the only writer used mathematics in the study of economic problems. Now-a-days mathematical methods have come to occupy an important place in economic discussions.

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