What is Applied Economics?

What is Applied Economics?

Applied economics applies the conclusions drawn from economic theories and empirical studies to real-world situations with the desired aim of informing economic decisions and predicting possible outcomes.

The purpose of applied economics is to improve the quality of practice in business, public policy, and daily life by thinking rigorously about costs and benefits, incentives, and human behavior. Applied economics can involve the use of case studies and econometrics, which is the application of real-world data to statistical models and comparing the results against the theories being tested.

Applied economics is the use of the insights gained from economic theory and research to make better decisions and solve real-world problems.

Applied economics is a popular tool in business planning and for public policy analysis and evaluation.

Why is Mainstream Economics Important?

Understanding the world in which we live is pivotal to many economic theories. Economics helps explain market phenomena, such as corrections and recessions, or even why we as consumers are more inclined to purchase one product or another. Applied economics is at the center of everything we do, and it is pivotal to explaining and conveying market principles.

Business leaders and managers can draw on the lessons in applied economics in order to better avoid potential pitfalls and make stronger decisions as managers. Even everyday consumers can better understand the prices they are paying at the grocery store. It can help explain why certain prices rise and fall and why sales occur.

Why is Mainstream Economics Important?

Understanding the world in which we live is pivotal to many economic theories. Economics helps explain market phenomena, such as corrections and recessions, or even why we as consumers are more inclined to purchase one product or another. Applied economics is at the center of everything we do, and it is pivotal to explaining and conveying market principles.

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Business leaders and managers can draw on the lessons in applied economics in order to better avoid potential pitfalls and make stronger decisions as managers. Even everyday consumers can better understand the prices they are paying at the grocery store. It can help explain why certain prices rise and fall and why sales occur.

Applied Economics Relevance in the Real World

Applied economics can illustrate the potential outcomes of financial choices made by individuals. For example, if a consumer desires to own a luxury good but has limited financial resources, an assessment of the cost and long-term impact such a purchase would have on assets can compare them to the expected benefit of the good.

This can help determine if such an expense is worthwhile. Beyond finances, understanding the meaning of the economic theories of rational choice, game theory, or the findings of behavioral economics and evolutionary economics can help a person make better decisions and plan for success in their personal life and even relationships.

 For example, a person who wants to quit smoking might recognize that they are prone to hyperbolic discounting and might choose to employ precommitment strategies to support their long-term preference to quit over more powerful short-term preferences to smoke. Or a group of friends sharing a large bowl of popcorn might explicitly or implicitly agree to limits or shares on how much popcorn each will take in order to avoid a tragedy of the commons situation.