Q.Explain the various economic investigations.

The two chief methods of economic investigation are the deductive method (reasoning from general premises to particular conclusions, abstract and analytical) and the inductive method (gathering particular facts by observation and then forming general laws). They are complementary, and sound economic analysis uses both.

Meaning

Methods of economic investigation are the ways in which economists study economic problems and arrive at economic laws and generalisations. There are two principal methods.

1. Deductive method (abstract or analytical method)

• It proceeds from the general to the particular.
• The economist starts from certain accepted assumptions or premises (for example, that consumers aim to maximise satisfaction), and then by logical reasoning draws conclusions and frames laws.
• Steps: selecting the problem, forming assumptions (hypothesis), logical deduction of conclusions, and verification with facts.
• Merits: it is simple, less time-consuming, and useful where direct experiment is not possible.
• Demerits: if the assumptions are wrong or unrealistic, the conclusions become wrong.

2. Inductive method (empirical or historical method)

• It proceeds from the particular to the general.
• The economist first collects and observes a large number of particular facts and data, and then by generalising from them frames economic laws.
• Steps: observation and collection of facts, classification and analysis of data, and generalisation.
• Merits: it is realistic and based on actual facts, and suits statistical and historical study.
• Demerits: collecting and analysing facts is costly and time-consuming, and wrong data lead to wrong conclusions. …