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Definition: Applied Economics
As with all other applied disciplines, Applied Economics is the study of economics in relation with real life, real world situations in conjunction with theoretical ideas. It is used to understand and solve problems in business and government, rather than just plain-speak ideas. Applied economics is a broader subset of the overarching social science that is economics – the study of the production and consumption of goods/services, and analysis of commercial activities and decision making.
Alternatively, in simple words, it is economic theory that is put into practice, in a specific setting. It can be at a macroeconomic (aggregate economy) or microeconomic (individual consumer/firm) level. In a sense, applied economics provide a true and clearer picture of a business/economic situations so that policy makers and decision makers make the right choices. Given the nature of the complexity of macroeconomies, applied research is especially useful in dealing with problems in macroeconomics.
With the objective of achieving potential desired outcomes, economic theories and principles are applied to the situation at hand. At times, advanced research would involve inter-disciplinary study such as econometrics as well. In spite of its extensive use of economic principles and theories, Applied Economics by itself is not a field of economics. Applied economics provides the insights to ensure real world economic stability. In short an intersection of economic theory, econometrics and real world business problems gives us applied economics.
For example, instead of creating an economic model to examine performance of government regulation in markets, a researcher can conduct an actual study to examine the government regulatory performance via data collection and inferences from key stakeholders.
Significance of Applied Economics:
• Forecasting of future events and estimations can be done.
• Applied Economics is a powerful tool to uncover the true perspective of events, irrespective of what they have been shown out to be.
• It can address practical real life issues in a range of fields as diverse as demographic economics, labour economics, development economics, health economics, etc.