The word “economics” is used to refer to the study of how societies produce, distribute, consume, and trade goods. “Applied economics” is the use of the results of economic research to solve real-world problems.
The word “economics” is also used to refer to an academic field that uses economic tools and concepts to study human decision-making, institutions, and economic growth. This field includes the mathematical modeling of economic behavior as well as empirical research on past and present economic practices in different countries around the world.
The field also includes work in other disciplines such as finance, sociology, psychology, and political science. At the same time, “Applied economics” refers to a profession that uses economics to solve practical problems.
How Do the Two Fields Differ?
When considering economics vs. applied economics it is worth noting that the two fields can be distinguished based on how they use economic tools to solve practical problems. The goals and methods of the two fields are also different, with the goals of the field often not only being different but even conflicting.
What Is Economics?
Economics is a social science concerned with the factors that determine the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek word “oikonomos,” which means “manager” or “administrator.”
The scope of economics is limited by the availability of the relevant data. To some extent, economics is like engineering in that it can only be as good as the assumptions that are available to approximate a particular economy.
What Is Applied Economics?
Applied economics concerns itself with using economic theory to derive implications for decision-making and public policy by examining issues in microeconomics or macroeconomics, or both.
It uses economic theories and models to predict how financial and non-financial actors will respond to economic changes such as price changes or new taxation regimes.
A degree in economics opens up many different opportunities for employment. Some fields where having an economics degree is useful include:
- Actuarial analyst
- Chartered accountant
- Compliance officer
- Data analyst
- External auditor
- Financial risk analyst
- Investment analyst
There are also many jobs available to those with master’s degrees in applied economics. The nature of applied economics means it can be applied to real-world applications:
- Environmental Economics
For example, environmental economics will look at the impact of changes in climate or pollution on the value of a company or property. It will also look at ways to reduce the risks associated with environmental issues.
Economists can advise on how changes in laws could impact businesses, and they can also project likely changes in the environment based on forecasts of population growth, industrial development, and technological advances.
- Behavioral Economics
Behavioral economics is a modern approach to applied economics. It looks at how people make decisions and treats people like animals making choices, where rational thinking is not always the best strategy.
The field also looks at how people navigate markets that behave in irrational ways, such as markets where there are only two items to choose from, but more than half of customers end up buying one of the same items repeatedly.
The basic idea of behavioral economics is often summed up as “What can I buy that will make me happy?” The field also looks at how people respond to incentives and describes situations where rationality fails humans in decision-making.
People typically get their first taste of applied economics in their undergraduate degree. They often learn some basic principles of microeconomics and macroeconomics, and the field is explained by a combination of theory, history, and application.
Economic models are discussed as well as how they can be used to predict potential outcomes. In an applied economics program, students are taught to use these models in real-life situations with real-world constraints. For example, they might look at ways to create an optimal tax system or suggest changes in corporate policy based on data collected from interviews with average consumers on a global scale.