The deductive method is also named as analytical, abstract or prior method. Deduction means reasoning or inference from general to particular. Deductive method draws new conclusions from basic assumptions or from established truths. It is a process of reasoning from certain principles that are assumed true for the analysis of facts. Then results are calculated that can be verified with observed facts. It is called abstract, analytical or priori method. The law of diminishing utility, consumers surplus is framed through deductive method.
There are two types of deductive methods that are mathematical and non-mathematical. The classical economists (Adam Smith, Ricardo, Senior, Mill, Cannon and Robbins) were applying non-mathematical method. At present mathematical method is popular. The experts like Cournot, Pareto and Edgeworth have used this method.
It means to draw a certain conclusion from known fact or general principle. For example, it is a general fact that man is mortal. It leads to the fact that Smith is also mortal. In the same way, we also observe that an increase in the price of a commodity is followed by a decrease in its demand. Therefore, Smith also decreases the demand for the commodity, if its price increases.
General Facts…. To…… Particular results
Universal …. To…… Individual
Steps Involved in Deductive Method:
In this method, following steps are taken to draw a certain conclusion from general fact:
Selecting the problem:
The problem which an investigator selects for inquiry must state clearly. It may be very wide like poverty, unemployment, inflation, etc. or narrow relating to the industry. The narrower the problem the better it would be to conduct the inquiry.
The next step in deduction is the framing of assumptions which are the basis of the hypothesis. To be fruitful for inquiry, the assumption must be general. In any economic inquiry, more than one set of assumptions should make in terms of which a hypothesis may formulate.
The next step is to formulate a hypothesis based on logical reasoning whereby conclusions are drawn from the propositions. This is done in two ways: First, through logical deduction. If and because relationships (p) and (q) all exist, then this necessarily implies that relationship (r) exists as well. Mathematics is mostly using these methods of logical deduction.
Testing and Verifying the Hypothesis:
The final step in the deductive method is to test and verify the hypothesis. For this purpose, economists now use statistical and econometric methods. Verification consists of confirming whether the hypothesis is in agreement with facts. A hypothesis is true or not can verify by observation and experiment. Since economics is the concern with human behavior, there are problems in making an observation and testing a hypothesis.
When price of a commodity rises, demand for that commodity decreases, and on the other hand when price of a commodity falls, demand for that commodity increases. This relationship between price and demand a called “law of demand” in economics. In this law:
Rise or fall in price ……. This is a general fact
Decrease or increase in demand……… This is a particular result
Finding of inverse or negative relationship……. This is testing of the hypothesis
Giving any title…… This relationship is given a title of “law of demand”
This Method of deriving economic laws is very simple and easy but it is very necessary that the said facts should be valid. If the basic facts are not valid, the results will also not he valid.
Deductive method of the derivation of economic laws is adopted by the classical economists.
Merits of Deductive Method:
Following are the merits of deductive method.
Deductive method makes exact analysis. It provides accurate results due to use of latest mathematical method.
Alternate for Experiment:
There Is limited scope for experiments in economics. The alternate for experiments is deductive method that can be used for development of subject.
Use of Mathematics:
The use of mathematics is helpful for clear analysis of economic problem. The economist can draw results in short period. Deductive method is useful to show inconsistencies in analysis.
Near to Reality:
Deductive method is near to reality. The economists understand economic systems and they work out relationship and add assumptions. Then they draw conclusions that are near to reality itself.
Deductive method is simple because it divides the data into different parts. Hypothetical conditions are so selected that make problem very simple. Then inferences are drawn to solve the problem.
Deductive method Is. powerful tool to draw conclusions from certain facts. it is superior to other methods when proper checks are applied.
Deductive method is helpful in drawing inference that are acceptable all over the world as these are based on general principles for example law of diminishing returns.
Demerits of Deductive Method:
Following are the demerits of deductive method.
The deductive method may provide results that may not be applied everywhere. The date from which results have been drawn may not hold good at all times and places.
The economic problems may be complex in nature. The experts may be difficult position to handle this method. It is abstract and requires expertise to draw results from various premises.
The deductive method cannot provide true generalization. if inadequate data is used in analysis. Anyone who tries to deduce generalizations on inadequate data will be wrong.
Deductive method may provide bad results if assumptions are not valid. The policies framed on the basis of such results will prove wrong. A policy for developed country cannot be applied in poor country.