DEDUCTIVE AND INDUCTIVE METHODS METHODS OF ECONOMICS LAWS

• DEDUCTIVE AND INDUCTIVE METHODS
  METHODS OF ECONOMICS LAWS
  MICRO ECONOMICS
• MEANING OF METHODOLOGY
• THE TERM “METHODOLOGY” REFERS TO THE WAY IN WHICH ECONOMISTS PROCEED WITH THE STUDY OF A SUBJECT MATTER.METHODOLOGY IMPLIES THE LOGICAL PROCESS OF DISCOVERING AND DEMONSTRATING TRUTH
• PETERSON,” THE TERM METHODS REFERS TO THE TECHNIQUES EMPLOYED BY ECONOMISTS IN BOTH THE CONSTRUCTION AND VERIFICATION OF ECONOMIC PRINCIPLES.”
• TWO METHODS:

1. DEDUCTIVE METHODS
2. INDUCTIVE METHODS

• DEDUCTIVE METHOD

1. ALSO CALLED HYPOTHETICAL METHODS BASED ON HYPOTHETICAL
2. ALSO ABSTRACT METHOD AS  CONCLUSIONS ARE DRAWN ON IMPORTANT FACTS ALONE
3. ALSO CALLED PRIORI METHOD BECAUSE TO FORMULATE LAWS BY THIS METHOD NO EMPIRICAL DATA IS CALLED FOR
4. METHOD OF INTELLECTUAL EXPERIMENT ( PROF. BOULDING)
5. USED BY CLASSICAL ECONOMISTS ADAM SMITH,RICARDO AND NEO CLASSICAL ECONOMISTS SUCH AS WALRAS,MEGNER AND MODERN ECONOMIST LIKE ROBBINS,FRIEDMAN

6. PROCEEDS FROM THE GENERAL TO PARTICULAR
7. GEE WILSON,” BY DEDUCTION IN LOGIC IS MEANT REASONING OR INFERENCE FROM THE GENERAL TO PARTICULAR OR FROM UNIVERSAL TO THE INDIVIDUAL
8. UNDER THIS METHOD STARTING WITH FEW ASSUMPTIONS,HYPOTHESES ARE FRAMED
9. TESTED AGAINST THE OBSERVED FACTS
10. THE HYPOTHESES CONFIRMED BY THE FACTS ARE ACCEPTED AS TENTATIVE THEORY
11. IF A THEORY STANDS THE TEST OF TIME.IT BECOMES A LAW SUCH AS LAW OF DIMINISHING RETURNS,LAW OF DEMAND ETC.

• EXAMPLE

1. MAN IS MORTAL
2. A IS MAN
3. SO A IS ALSO MORTAL

• EXAMPLE
• TAKE THE EXAMPLE OF UNIVERSAL LAW OF DIMINISHING MARGINAL UTILITY WHICH MEANS THE LARGER THE STOCK OF A COMMODITY THE LESS IS THE MARGINAL UTILITY.
• A NUMBER OF CONCLUSIONS.
• RICH PEOPLE DERIVE SMALL AMOUNT OF UTILITY FROM THE MONEY THAN POOR
• RICH CAN BEAR MORE BURDEN OF TAX

·         THE LAW OF DEMAND IS ALSO BASED ON LAW OF DIMINISHING MARGINAL UTILITY.SO PEOPLE WILL BUY MORE OF A COMMODITY ONLY WHEN THE PRICE IS LOWERED.

• STEPS

1. GENERAL PROPOSITION OR HYPOTHESES
2. ASSUMPTIONS
3. LOGICAL CONCLUSIONS
4. PREDICTION
5. VERIFICATION OF PREDICTION OR REASONING FROM GENERAL TO PARTICULAR

• STEPS OF DEDUCTIVE METHOD
• GENERAL PROPOSITION OR HYPOTHESIS :

1. TO MAKE GENERAL PROPOSITION
2. HYPOTHESIS REFERS TO THE GENERAL PROPOSITION WHICH HAS NOT BEEN YET PROVED
3. ALSO CALLED PRIORI STATEMENT
4. GENERAL PROPOSITION THAT THE MARKET PRICE OF A COMMODITY IS DETERMINED BY ITS DEMAND AND SUPPLY

• ASSUMPTIONS

1. MAKE ASSUMPTIONS REGARDING ECONOMIC PROBLEMS
2. CONDITIONS UNDER WHICH THE HYPOTHESIS ABOUT ECONOMIC BEHAVIOR WILL HOLD GOOD
3. EXPLANATION OF THE HYPOTHESES ON THE BASIS OF FACTS
4. LESS IMPORTANT FACTS ARE ASSUMED TO BE CONSTANT

• ASSUMPTIONS:

a)    THERE ARE MANY BUYERS AND SELLERS OF THE COMMODITY COMPETITIVE MARKET

b)    DEMAND CONTRACT WHEN THE PRICE RISES AND VICE VERSA

c)    SUPPLY EXTENDS WHEN PRICE RISE AND CONTRACTS WHEN PRICE FALL

• LOGICAL CONCLUSION

1. CAN BE DRAWN ON THE BASIS OF THE ABOVE ASSUMPTIONS
2. AT HIGH PRICE THE SUPPLY WILL BE MORE THAN DEMAND SO PRICE WILL TEND TO FALL
3. AT LOW PRICE THE SUPPLY WILL BE LESS THAN DEMAND THE PRICE WILL TEND TO RISE
4. WHEN SUPPLY WILL BE EQUAL TO DEMAND NO TENDENCY TO CHANGE
5. LAW WILL BE PRICE WILL BE DETERMINED BY DEMAND AND SUPPLY

• PREDICTION

1. ESTABLISH CAUSE AND EFFECT RELATIONSHIP
2. CAN BE PREDICTED  AS A RESULT OF INCREASE IN SUPPLY OF  THE COMMODITY ,ITS MARKET PRICE WILL FALL AND DUE TO DECREASE IN ITS SUPPLY MARKET PRICE WILL RISE
3. VERIFICATION OF PREDICTION:-ON THE BASIS OF EMPIRICAL STUDIES
4. PREDICTION ARE IN CONFORMITY WITH FACTS,SAME ARE ACCEPTED

• MERITS OF DEDUCTIVE METHODS

1. SIMPLE METHOD
2. CONCLUSIONS DRAWN ARE CERTAIN ,CLEAR
3. IMPARTIAL NO NEED TO COLLECT  DATA
4. UNIVERSAL APPLICATIONS
5. PREDICTION
6. LESS EXPENSIVE
7. SUITABLE FOR FORMULATING THEORIES

• DEMERITS

1. UNREALISTIC ASSUMPTIONS
2. DIFFICULTY IN VERIFICATION
3. STATIC APPROACH
4. ALL PROBLEMS CAN NOT BE STUDIED WITH THE HELP OF THIS METHOD
5. INTELLECTUAL TOY
6. NO PLACE FOR PERSONAL AND HISTORICAL EXPERIENCE