Methods of Economic Analysis

Economists use two broad logical methods to build and test economic theories.

The Deductive Method (also called the abstract or analytical method) starts from certain general premises or assumptions that are believed to be true, and then reasons LOGICALLY from those premises to arrive at specific conclusions — moving from the general to the particular. For instance, starting from the general premise 'as the price of a good rises, and all else remains unchanged, the quantity demanded of that good falls,' one can logically deduce the specific conclusion that a tax which raises the price of sugar will reduce the quantity of sugar demanded. The deductive method is quick and does not require exhaustive data collection, but its conclusions are only as reliable as the assumptions behind them. …