ASSIGNMENT ON

Economic Theory
Course Title: Economics for Textile Engineer
Course Code: HUM-333

SUBMITTED TO:
Md. Abrar Ahmed Apu

Assistant Professor

Department Of Textile Engineering

SUBMITTED BY
Saikat Chandra Das

ID NO: 153-23-4446

Section: B

Department Of TE (EVE)

DATE OF SUBMISSION: 20 November 2017

 Table of Contents

1. INTRODUCTION1

2. LEARNING OBJECTIVE1

3. METHODOLOGY1

4. MAIN BODY3-7
4.1 Merits of Deductive Method..5

4.2 Demerits of Deductive Method.5

4.3 Merits of Inductive Method.6

4.4 Demerits of Inductive Method...6

4.5 Assumption of Economics..7

5. FINDING& DISCUSSION7-8
5.1 Difference between Deductive and Inductive Method..7-8

6. CONCLUSION8

7. REFERENCES.....9
 1. Introduction
1.1. Economics:
Economics can be defined in a few different ways. Its the study of scarcity, the study of how
people use resources and respond to incentives, or the study of decision-making. It often involves
topics like wealth and finance, but its not all about money. Economics is a broad discipline that
helps us understand historical trends, interpret todays headlines, and make predictions about the
coming years.

Economics ranges from the very small to the very large. The study of individual decisions is
called microeconomics. The study of the economy as a whole is called macroeconomics. A
macroeconomist might focus on families medical debt, whereas a macroeconomist might focus
on sovereign debt.

1.2. Economics Theory:

Reason is reason tries to understand events: deductive reasoning, based on generally
accepted principles, and inductive reasoning, in which general principles are formed from
observed events. The field of economics has deductive and inductive sides, which are
complementary to each other. The tool by which the human mind comes to understand the
world. There are two processes by which

2. Learning Objectives
To use inductive reasoning to draw a conclusion from a series of examples.
To use deductive reasoning to draw a conclusion from facts or accepted statements.
To know compare between inductive and deductive reasoning.

3. Methodology:
Methods of Economic Analysis:

An economic theory derives laws or generalizations through two methods:

(1) Deductive Method and

(2) Inductive Method.

4. Main Body:

These two ways of deriving economic generalizations are now explained in brief:

(1) Deductive Method of Economic Analysis:

Deductive economics starts with a set of axioms about economies and how they work,
and rely on these principles to explain individual cases or events. Supply and demand
analysis, a staple in any introductory economics course, is an example of deductive
reasoning because it involves a set of generally accepted principles about demand and
supply. To summarize, deduction in economics starts with a generally accepted principle
and proceeds to the specific.

The Deductive Method

Deduction means interpretation or implication from general to the particular or from the
universal to the individual. The deductive method develop new finale from elementary
hypothesis or from truth recognized by other methods. It engrosses the process of analysis from
certain laws or principles, which are supposed to be true to the analysis of facts. This involves
four steps.

1. Selecting the Problem - The problem which a researcher plump for, for enquiry must be
fixed clearly. It may be very broad like redundancy, scarcity, price rises etc. or tapered
relating to an industry.
2. Formulating Assumptions - The next step in deduction is the outlining of postulations
which are the basis of propositions. To be productive for survey, the assumptions must be
general.
3. Formulating Hypothesis - The next step is to formulate a hypothesis on the basis of
logical reasoning whereby conclusions are drawn.
4. Testing and Verifying Hypothesis - This is the final step of deductive method, to test
and verify the hypothesis. For this purpose, economists use statistical and econometric
methods. Verification consists in corroborating whether the hypothesis is in agreement
with facts.

Example:
Let there be 360 degrees in circle (A general assumption)

There are four right angles in circle (A logical argument)

Therefore this right angle has 90 degrees (A particular conclusion)

4.1. Merits of Deductive Method:

The main merits of deductive method are as under:

(i) This method is near to reality. It is less time consuming and less expensive.
(ii) The use of mathematical techniques in deducing theories of economics brings exactness and
clarity in economic analysis.

(iii) There being limited scope of experimentation, the method helps in deriving economic
theories.

(iv) The method is simple because it is analytical.

4.2. Demerits of Deductive Method:

It is true that deductive method is simple and precise, underlying assumptions are valid.

(i) The deductive method is simple and precise only if the underlying assumptions are valid.
More often the assumptions turn out to be based on half-truths or have no relation to reality. The
conclusions drawn from such assumptions will, therefore, be misleading.

(ii) Professor Learner describes the deductive method as armchair analysis. According to him,
the premises from which inferences are drawn may not
hold good at all times, and places. As such deductive reasoning is not applicable universally.

(iii) The deductive method is highly abstract. It requires; a great deal of care to avoid bad logic
or faulty economic reasoning.

As the deductive method employed by the classical and neo-classical economists led to many
facile conclusions due to reliance on imperfect and incorrect assumptions, therefore, under the
German Historical School of economists, a sharp reaction began against this method. They
advocated a more realistic method for economic analysis known as inductive method.

(2) Inductive Method of Economic Analysis:

Inductive reasoning in economics does the reverse of deductive reasoning; namely, it

begins with an individual problem or question and proceeds to form a general principle
based on the evidence observed in the real world of economic activity. For example, an
economist who asks if a government program of public works spending will stimulate a
region's economy will proceed to research the issue, collect and analyze data, and based
on conclusions, form a general theory about the economic impact of fiscal policies.

The Inductive Method

Induction is the process of way of thinking from a part of the intact, from details to general from
the individual to the widespread. The inductive method involves the following steps.

1. The Problem - In order to appear at a simplification relating to an economic occurrence,

the dilemma should be correctly selected and clearly stated.
 2. Data - The second step is the compilation, enumeration, categorization and investigation
of data by using suitable statistical techniques.
3. Observation - Data are used to make surveillance about particular facts relating to the
problem.
4. Generalization - On the basis of inspection, generalized is logically derived which
establishes a general truth from particular facts.

Example:
This apple falls to the ground. (A particular observation)

All apples fall to the ground. (More observations)

All objects attract each other. (A general explanation)

4.3. Merits of Inductive Method:

(i) It is based on facts as such the method is realistic.

(ii) In order to test the economic principles, method makes statistical techniques. The inductive
method is, therefore, more reliable.

(iii) Inductive method is dynamic. The changing economic phenomenons are analyzed and on
the basis of collected data, conclusions and solutions are drawn from them.

(iv) Induction method also helps in future investigations.

4.4. Demerits of Inductive Method:

The main weaknesses of this method are as under:

(i) If conclusions drawn from insufficient data, the generalizations obtained may be faulty.

(ii) The collection of data itself is not an easy task. The sources and methods employed in the
collection of data differ from investigator to investigator. The results, therefore, may differ even
with the same problem.

(iii) The inductive method is time-consuming and expensive.

4.5. Assumption of Economics

Economic theories are based on assumptions which are broadly classified into four
groupings.
 1. Psychological or Behavioral Assumptions - These assumptions are about the individual
human behavior. They refer to reasonable behavior of individuals as clients and
manufacturer
2. Institutional Assumptions - These assumptions in economic theory relate to social,
political and economic establishment. All theories are developed based on the capitalist
economy assumptions.
3. Structural Assumptions - These assumptions relate to nature, physical structure or
landscape of the economy and position of technology. These assumption relate to a static
economy and dynamic economy whichever applicable.
4. Ceteris Paribus Assumptions - It means 'things being equal' assumption. In order to
judge the impact of one feature at a time, the other features are held invariable.

5. Finding and Discussion

5.1. Difference between Inductive and Deductive Reasoning:

The process of thinking about something, in a rational manner, so as to draw valid conclusions,
is known as Reasoning. It is a daily activity that we use to make decisions, which involves the
construction of thoughts and converting them into a proposition to give reasons on why we have
opted for a particular alternative over the other. Reasoning (logic) can take two forms inductive
reasoning or deductive reasoning. The former follows a particular flow or behavior so as to make
inferences, whereas the latter uses available information, facts or premises to arrive at a
conclusion. These two logics are exactly opposite to each other. Still, they are often juxtaposed
due to lack of adequate information. In this article, we are going to tell you the basic differences
between inductive and deductive reasoning, which will help you to understand them better.

SL Deductive Method Inductive Method

NO
01 It does not give new knowledge. It gives new knowledge.

02 It is method of Verification and It is a method of Discovery

Explanation.
03 It is a method of Instruction. It is a method of Teaching

04 Child gets ready-made information and Child acquires first-hand knowledge and
makes use of it. information by actual observation.
05 It is a very quick process. It is slow process.
 06 It encourages dependence on other It trains the mind and gives self-
sources. confidence and initiation.
07 There is less scope of activity in it. It is full of activity.

08 It is a downward process of thought and It is an upward process of thought and

leads to useful result.
09 This method is used in Macro
Economics.
10 General laws are first state and
particular example to prove them.
leads to principle.
This method is used in Micro Economics.
First particular causes are dealt with and
then laws are derived from them.

In my opinion, deductive method is better in microeconomics because it consists strong

theoretical background to support the method which can assure its reliability and correctness.

6. Conclusion:

The above analysis reveals that both the methods have weaknesses. We cannot rely exclusively
on any one of them. Modern economists are of the view that both these methods are
complimentary. They partners and not rivals. Alfred Marshall has rightly remarked:

Inductive and Deductive methods are both needed for scientific thought, as the right and left
foot are both needed for walking.

We can apply any of them or both as the situation demands.

 References
1. http://economicsconcepts.com/methods_of_economic_analysis.htm
2. http://classroom.synonym.com/induction-vs-deduction-economics-2462.html
3. http://keydifferences.com/difference-between-inductive-and-deductive-reasoning.html
4. http://www.tutorsonnet.com/methods-laws-and-assumptions-in-economic-theory-
homework-help.php
5. https://www.ck12.org/section/Inductive-and-Deductive-Reasoning-::of::-Angles-and-
Constructions-::of::-CK-12-Foundation-and-Leadership-Public-Schools-College-Access-
Reader:-Geometry/
6. https://www.aeaweb.org/resources/students/what-is-economics