Applied Economics

Applied economics is the field of study that deals with applying economic theories in real-world scenarios. In the applied version of economics, the conclusions derived from the theoretical analysis are utilized to make complex economic terms and situations easy to understand for the information seekers or recipients. 

Applied economics aims to implement the theoretical facts and enhance the quality of business, adopt the best practices in carrying out daily activities, improve human behavior, etc. In addition, it helps figure out to what extent the choices made by an individual or entity would impact a business or individual decision. 

• Applied economics refers to the field of study where the knowledge gained from the theoretical economics lessons can be used to assess what will work well in a particular situation.
• It generally uses the basics of economics as the seed to ascribe relevant solutions to real-life problems.
• The application of economics makes finding answers to questions related to the environmental sector, human behavior, market situations, legal aspects, etc., easier.
• It works for both micro (individual-level) and macro-level (community, business, or national-level) problems.

Applied economics, as the name suggests, deals with the application of theoretical aspects of the subject. This area of study does not rely on any one principle of economics. Instead, it takes into consideration all the principles of the subject. It applies them in respective sectors to understand the effect of chosen alternatives on the decisions that individuals, policy-makers, and businessmen make.

Some of the concepts and principles that make the applied version of economics effective include econometrics, marginal principle, opportunity cost, the principle of voluntary returns, the law of diminishing marginal utility., and the real/nominal principle.

The studies of applied economics have shown how effective the implementation of the theoretical principles has been in dealing with a particular cause, issue, or situation. It also indicates how it uses economics as more than just a hub of theories. Instead, the application of the subject is used as a tool to extend the scope of economics from books to real-world scenarios.

As economics is studied as microeconomics and macroeconomics, the applied version of the subject is also implemented at two levels: micro and macro. While the application at the micro-level tries to use theoretical economics to solve issues at the individual level, the macro-level application helps deal with problems at a city, state, or national level.

Applied economics marks the utilization of the knowledge and skills acquired by professionals during their theoretical economics lessons. The leaders, policy-makers, and decision-makers use it in any context to figure out how their choices would impact their decisions. However, they can approve or disapprove a strategy, initiative, or step after proper analysis and validation.

The field of study makes individuals apply theories and knowledge to solve their problems. It, therefore, finds relevance in different theories, concepts, and industries, including the game theory.

With applied economics, finding answers to questions related to the environmental sector, human behavior, market situations, legal aspects, etc., becomes easier. From helping environmentalists determine the cost of carbon emissions to framing legal market strategies with respect to economics, this applied form of the subject lets individuals and entities find answers to the queries they have. For example, the applied field of economics helps utilize analytical tools to assess consumer behavior and accordingly target a market.

Recently, COVID-19 led to the heavy use of resources, which the healthcare sector was unprepared for. The application of economics helped healthcare administration or authorities to conduct predictive analysis, initiate resource allocation, and boost policies to support the sector to tackle the health care turmoil. It shows how applied economics and management remain interrelated no matter which industry professionals work in.

Let us consider an applied economics example to understand the concept better:

Customers usually look forward to buying things with big discounts or those sold for free. So, the marketers use this behavior to inflate their products' prices and denote the actual price.

For example, brand A sells a T-shirt for $30, whose actual worth is $20. However, it introduces a year-end sale during Christmas and announces a $10 discount on the same T-shirt. As a result, even after giving discounts, the brand sells the T-shirt at its actual rate, while consumers are happy to get it at a big discount.

The instance above shows how to utilize the pricing strategy based on the applied form of economics to determine consumer behavior in the market.

Applied economics helps make business decisions, whether it is the decision to purchase an asset or fixing the price at which they should sell their products/services to customers. This field of study plays a significant role in resolving issues that applied mathematics and accountancy cannot solve. 

However, this applied version of the subject works on certain assumptions. Conducting analysis using the application of economics is normally for a general group. Thus, such generalized principles might not work for individual cases, including certain places or markets.

This is a guide to what is Applied Economics and its meaning. Here we explain how does it work along with its importance, pros and cons, and examples. You can learn more about economics from the following articles –

• Autarky
• Equity in Economics
• Lease Extension
• Economics vs Finance
• Example of Economic