APPLIED ECONOMICS – is the study of economics in relation to real world situations.

It is the application
of economic principles and theories to real situations, and trying to predict what the outcomes might be.

Simpler Definition

Applied economics – is the study of observing how theories work in practice.

What is 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.

(Continued)

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.

How Does Applied Economics Works?

Applied economics, as the name suggest, deals with the application of theoretical aspects of the subject.

It applies economic principles to respective sectors to understand the effect of chosen alternatives on
the decisions that individuals, policy-makers, and businessmen make.

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.

Applied Economics Relavance

What is it important to study applied economics?
It is important to study the field as it helps business leaders, policy-makers, and decision-makers
understand the effect of their choices on the decisions they make. As a result, they carefully determine
the right and not-so-right ways of proceeding with it.

Importance of Applied Economics

 Mechanism to determine what steps can reasonably be taken to improve current economic
situation.
 Powerful tool to reveal the true and complete situation in order to come up with things to do.
 Teach valuable lessons on how to avoid the recurrence of a negative situation or at least
minimize the impact.
What’s the Difference Between Microeconomics & Macroeconomics?

 Microeconomics examines small economic units, the components of the economy.

 For example: individuals, households, firms, industries

 Macroeconomics looks at aggregates.

 For example: national output, overall price level, aggregate unemployment.

MICROECONOMICS VS MACROECONOMICS

MICROECONOMICS
Studies individual income
Analyzes demand and supply of labor
Deals with households and firms decisions
Studies individual prices
Analyzes demand and supply of goods
MACROECONOMICS
Studies national income
Analyzes total employment in the economy
Deals with aggregate decisions
Studies overall price level
Analyzes aggregate demand and aggregate supply

MICROECONOMICS MACROECONOMICS
1.MARKET 1.GDP
2.EFFECT OF PRICES OF GOODS 2.INFLATION
3.LABOUR MARKET 3.EMPLOYMENT/UNEMPLOYMENT
4.CONSUMER BEHAVIOUR 4.AGGREGATE DEMAND
5.SUPPLY 5.CAPACITY OF ECONOMY

SUPPLY
  Amount of some good or service a producer is willing to supply at each price.
 Price is what a producer receives for selling one unit of a good or service.

The Law of Supply

 According to the law of supply, the higher the price, the larger the quantity produced.

Supply
Price
Supply Quantity
Price As Price
Supplied
Quantity falls…
As price falls
Supplied
increases.
Increases

 The Higher the price leads to a higher quantity supplied and a lower price leads to a lower
quantity supplied.

Demands

 Are amount of some good or service consumers are willing and able to purchase at each price.
 Based on ability to pay