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Inductive Method: Meaning, Steps, Merits and Demerits

Inductive Method:

Induction means reasoning or inference from particular facts to general principles. Inductive method is a process of arranging facts to draw universal laws. This method was used in economics by the German historical school that tried to develop economics from historical research.

As per this method economist can collect material to draw generalizations and verifies the conclusions by applying them to subsequent events. This method depends upon statistics The Malthusian theory of population and Engel’s law of family expenditure are based on this method.

In inductive method we approach from particular fact to general fact. For example, we see that when the price of a commodity increases, Aslam decreases its demand. So, keeping in view Aslam’s certain behaviour, we draw this general conclusion that when the price of a commodity increases, all the people purchase less quantity of it.

Particular Facts…. To…… General results

Individual …. To…… Universal

Steps Involved in Inductive Method:

In this method, following points are kept in mind. While deriving economic laws:

  1. The Problem:

In order to arrive at a generalisation concerning an economic phenomenon, the problem should be properly selected and clearly stated.

  1. Data:

The second step is the collection, enumeration, classification and analysis of data by using appropriate statistical techniques.

  1. Observation:

Data are used to make observation about particular facts concerning the problem.

  1. Generalisation:

On the basis of observation, generalisation is logically derived which establishes a general truth from particular facts.

Thus, induction is the process in which we arrive at a generalisation on the basis of particular observed facts.


When income of a person rises, his/her purchasing power increases, as a result of which he purchases more of the normal goods. On the other hand, when income falls, he/she purchases less because of decrease in his purchasing power, this relationship between income and consumption, in economics, is called the law of consumption.

Rise or fall in income……. This is a particular fact

Increase or decrease in consumption…… This is a particular result

Finding positive relationship…… This is testing of general results from particular facts

Giving any title……. This relationship is given a title of “law of consumption”

The characteristic of this method is that the facts and figures of a particular nature are collected and conclusions are derived alter testing them properly. They are made exact and valid with the help of statistical methods. However, the drawback of this method is that the conclusions derived from a few collected facts are insufficient to formulate a general rule.

The economists belonging to Historical School of thought like Roscher, Hildebrand and Frederick list used inductive method to derive economic laws.

Merits of Inductive Method:

Following are the merits of inductive method.

Dynamic Approach:

Inductive method is applicable in changing economic world. The changing economic data is analyzed and conclusions are drawn. The remedy is suggested to new problems.

More Realistic:

Inductive method is more realistic as it is based on facts. it deals with subject as a whole because it does not divide data into different parts.

Future Enquiries:

Inductive method helps in future enquiries. When general principles are made this method is used for investigation.

Particular Situation:

The principles drawn under inductive method are applicable in particular situation. History of particular place is the basis of problem. Therefore, solution suggested is applicable there only.

Macro Policies:

Inductive method is used in collection of data by government in national income, general price level and employment. The policies are made for removal of poverty and underdevelopment.

Demerits of Inductive Method:

Following are the demerits of inductive method.


Inductive method depends upon statistical data. The application of assumptions is essential for better results. in absence of assumptions results are misleading.

Limited Use:

Inductive method is used in physical sciences. Economics deals with economic problems of people. This method has limited use in economics.

Not Certain:

Statistical information can provide approximate results. The principles framed under inductive method are probable but not certain.

Costly Method:

Inductive method Is costly and requires lot of time. It involves collection, classification analysis and interpretation of data. The experts charge high fee for their Services.

Fails to Prove Hypothesis:

Inductive method fails to prove hypothesis due to use of statistics. it can show that hypothesis does not relate to facts. Collection of data is justified if it relates to hypothesis.

Opinion of Investigators:

Investigators collect the data. When their opinion is included, in data the results drawn cannot be called accurate.


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