Drawing inferences about the lumped lot on the basis of an individual observation is known as generalization in common man’s language and as induction or inductive method in the language of economics. In like manner, drawing inferences about an individual part on the basis of an observation about a big lump is known as deduction or deductive method in economic analysis.
Generalization of individual traits to learn the traits of the community as a whole, could be highly misleading. One needs to study the community as an aggregate to study its traits. This establishes the importance of macro analysis. Prof. Boulding has driven the point home citing an apt simile.
The forest, as he points out, though an aggregation of trees, yet, it does not exhibit the characteristics and behaviour patterns of individual trees. In other words, it would be untrue to say that the behaviour patterns of the forest as an entity can be obtained by aggregating the behaviour-patterns of individual trees in it.
Such an attempt would be highly misleading because an individual tree germinates, grows and decays, while a forest goes on forever with exactly the same composition in respect of the trees that compose it. An individual tree cannot affect the climate of its surroundings in which it grows, but a forest can and it also does.
The two disciplines are complementary rather than competitive in most of the cases of economic analysis. They are so interdependent that neither approach is complete without the other. In other words, we cannot attain complete understanding of an economic system unless we integrate the two in a judicious manner.
For instance, sales realized by a firm are dependent not only on the price of the product, but more so, on the total purchasing power possessed by the community. In like manner, price of a product depends not only on its demand but also on the costs of production as well as on the prices of other products.
In simple language, the statement that “Indians are very hospitable people” does not imply that a particular Indian, Mr X, is essentially hospitable. In like manner, the statement that “Mr Y, an Indian, is very hospitable” does not imply that all Indians are equally hospitable.
To be able to comment on the hospitality of Indians, what one needs to do is to conduct a survey of a cross-section of Indians and if a majority of them be found hospitable, make a statement that Indians, in general, are hospitable.