Economic theories are statements of economic tendencies of people. While developing economic theories, the Economists formulate assumptions. So, economic theory derives generalizations of economic facts through two methods: 

They are as follows:

Deductive Method: This method was developed by David Recardo, J.S.Mill, T.R.Malthus, Alfred Marshall and others. This method is also called as Analytical method.

Under this method, the conclusions are drawn from the universal to the individual or from general to the particular. This method derives new conclusions from assumptions. It is also called as ‘Scientific Method’. It includes four stages viz.,

• Identification of the hypothesis to be tested. 
• Generations of predictions from the hypothesis. 
• Conducting experiments to check whether the predictions are correct. 
• Confirming the hypothesis.

Inductive Method: This method was advocated by Frederic List, Rosher and Hilde Brand. Inductive method is a process of reasoning from particular to general or from individual to the universal. It functions in four stages viz.,

• Selection of an economic problem and defining the same clearly
• Collection of data using statistical techniques. 
•  Analysing the data. 
• Observation and generalization to establish a general truth. 

The inductive method is also called as historical method or concrete method and realistic method. In this method, we investigate particular facts or historical events and try to generalize the findings of the observation for the entire economic system.

It is concluded that both Deductive and inductive methods are ential for the proper development of economic laws. According to Alfred Marshall, “Induction and deduction are both needed for scientific thought just as the right and left foot are both needed for walking”.