Applied economics is the study of economics in relation to real world situations, as opposed to the theory of economics. It is the application of economic principles and theories to real situations, and trying to predict what the outcomes might be.
Put simply, applied economics is the study of observing how theories work in practice. Applied economics may be practiced at macroeconomic (the whole, aggregate economy) or microeconomic (analyzing individual consumers and companies) levels.
Applying economics to the status of the economy of a country, household or company helps eliminate all attempts to dress up a situation so that it will seem better or worse than it really is.
Economic Theory is all about thinking things up, while Applied Economics is about trying things out.
Only with applied economics can a true and complete picture of an economic situation or theory emerge, so that decision-makers can choose what to do in order to move in the right direction from a current position.
According to the University of Maryland in the United States, a robust background in applied economics allows people to make informed forecasts about future trends.
“Evidence-based policy making replaces ideology with careful definition of problems, collection and analysis of data, and well-reasoned program evaluations.”
“Professionals who can analyze and interpret sophisticated economic data and intelligently apply economic theory are able to better assess the economic impact of key public policy questions.”
The term ‘applied economics’ is believed to have started being used nearly 200 years ago, in the writings of French economist and businessman Jean-Baptiste Say (1767-1832) and British political economist, philosopher and civil servant John Stuart Mill (1806-1873).
Mr. Say wrote about applying the general principles of political economy. In 1848, Mr. Mill used the term in his work Principles of Political Economy with Some of Their Applications to Social Philosophy.
Should I study Economics or Applied Economics?
When wondering whether to study Economics or Applied Economics at university, bear in mind that applied economics students take fewer core theoretical modules and a larger number of applied modules than those studying for an economics degree.
According to the University of St. Andrews in Scotland:
“This (Applied Economics degree) provides the student with a broader perspective on the application of economic theory to real world issues but less knowledge of core economic theory.”
On its website, Duke University says Applied Economics is for people seeking a broad understanding of economics. While having to study several aspects of economic theory, they will also have considerable freedom in their elective courses.
Duke University adds:
“Students are encouraged to take graduate field courses in areas of interest, such as labor economics, environmental economics, urban economics, econometrics, or international economics. Students who pursue this track often go on to work at think tanks, in consultancies, and in government agencies or research centers.”