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.

KEY TAKEAWAYS
● 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.

● Individuals can also benefit from applying economic thinking and insights to personal and
financial decisions.

Understanding Applied Economics

Applied economics is the application of economic theory to determine the likely outcomes associated
with various possible courses of action in the real world. By better understanding the likely
consequences of choices made by individuals, businesses, and policy makers, we can help them
make better choices. If economics is the science of studying how people use various, limited means
available to them to achieve given ends, then applied economics is the tool to help choose the best
means to reach those ends. As a result, applied economics can lead to "to do" lists for steps that can
be taken to increase the probability of positive outcomes in real-world events.

The use of applied economics may first involve exploring economic theories to develop questions
about a circumstance or situation and then draw upon data resources and other frames of reference
to form a plausible answer to that question. The idea is to establish a hypothetical outcome based on
the specific ongoing circumstances, drawn from the known implications of general economic laws
and models.