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Applied Economics

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[Old Nassau, Princeton University - Office of Communication]


- Overview

Applied economics is the study of how economic theory can be used to predict the outcomes of different courses of action in the real world. It helps individuals, businesses and policymakers make better choices. For example, applied economics can help explain: price, delivery charges, why are things on sale?

Applied economics can also help solve social problems such as: maximize local business vitality, limit environmental degradation and climate change.

Applied economics differs from economics, which is a theoretical model of how societies function. Applied economics is the implementation of that model broadly and in a myriad of specific circumstances.

While we often think of economics as an esoteric subject far removed from our everyday experiences, we see applied economics applying the discipline to real-world problems that affect us all.


- Five Examples of Applied Economics

According to a well-worn adage, politics is “the art of the possible.” In other words, politics is the art of governing, of how we structure and organize social life. If politics is the art of social organization, then applied economics is the tangible science of social organization.

Through applied economics, we have the analytical tools to glean insights from data. Applied economics informs policy and decision-making in all sectors of society, both public and private.

Here are five ways we use applied economics in the modern world.

  • Environmental economics: What are the costs of command-and-control environmental regulation versus market-based incentives? How do we put a price on carbon emissions? Should we? Applied economics can help develop solutions to these problems.
  • Behavioral economics: How can we use economic insights and cognitive psychology analysis to predict how people will behave in specific circumstances? Applied economics shows us how to do this.
  • Law and economics: the two are inevitably intertwined. Law codifies ethics, markets, and human behavior. Applied economics predicts how best to implement these laws.
  • Marketing and Economics: Effective marketing relies on informed, evidence-based decision-making. Consumer behavior, policies and ethics, market analysis, and forecasting profits and losses determine the success of any marketing campaign. Applied economics provides analytical tools that integrate each element into a whole.
  • Healthcare Economics: Even before COVID-19 swept the world, the healthcare industry was in rapid transformation and under intense pressure. Predictive analysis, resource allocation, and identifying policy initiatives to support public health are key roles of applied economics in healthcare.

In fact, it is the scope of applied economics that all social factors work together to achieve the common good of all


- Applied Economics and The T-Shaped Professional

The practical knowledge and skills gained from applied economics are relevant to leaders and decision-makers in any setting. Based on core economic principles, applied economics focuses more on implementation than theory. It’s coming down from the tower and getting into the nuts and bolts of how things work. 

Learning how to apply these concepts can create a broad range of knowledge that complements the depth of expertise in any particular area. This creates “T-shaped professionals,” people who can apply a broad range of analytical, ethically sound, and collaborative skills to solve the problems at hand. 

These people understand the challenges, know how to collect and analyze relevant data to find solutions, and then communicate their insights to their peers.


[More to come ...]



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