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Applied Economics: Definition, How It Works, and How It's Used

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

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What Is Applied Economics?

The aim of applied economics is to inform economic decisions and predict possible outcomes. Applied economics relates the conclusions drawn from economic theories and empirical studies to real-world situations.

The purpose of applied economics is to improve the quality of practice in business, public policy, and daily life by thinking rigorously about costs versus benefits, incentives, and human behavior. It can involve the use of case studies and econometrics , which is the application of real-world data to statistical models and comparing the results against the theories being tested.

Key Takeaways

• Applied economics is the use of the insights gained from economic theory and research to make better decisions and solve real-world problems. 
• Applied economics is a popular tool in business planning and for public policy analysis and evaluation.
• Individuals can also benefit from applying economic thinking and insights to personal and financial decisions.

Understanding Applied Economics

Applied economics is the application of economic theory to determine the likely outcomes associated with various possible courses of action in the real world. By better understanding the likely consequences of choices made by individuals, businesses, and policymakers, we can help them make better choices. If economics is the science of studying how people use various, limited means available to them to achieve given ends, then applied economics is the tool to help choose the best means to reach those ends. As a result, applied economics can inform a "to-do" list identifying steps that can be taken to increase the probability of positive outcomes in real-world events.

The use of applied economics may first involve exploring economic theories to develop questions about a circumstance or situation and then drawing upon data resources and other frames of reference to form a plausible answer to that question. The idea is to establish a hypothetical outcome based on the specific ongoing circumstances drawn from the known implications of general economic laws and models.

Applied Economics Relevance in Financial Choices

Applied economics can illustrate the potential outcomes of financial choices made by individuals. For example, if a consumer desires to own a luxury good but has limited financial resources, an assessment of the cost and long-term impact such a purchase would have on assets can compare them to the expected benefit of the good. This can help determine if such an expense is worthwhile . Beyond finances, understanding the meaning of the economic theories of rational choice , game theory , or the findings of behavioral economics and evolutionary economics can help a person make better decisions and plan for success in their personal life and relationships.

For example, a person who wants to quit smoking might recognize that they are prone to hyperbolic discounting and might choose to employ precommitment strategies to support their long-term preference to quit over more powerful short-term preferences to smoke. Or a group of friends sharing a large bowl of popcorn might explicitly or implicitly agree to limits, or shares, for how much popcorn each will take in order to avoid a tragedy of the commons situation.

Making Better Business Decisions

Applied economics can also help businesses make better decisions. Understanding the implications of economic laws of supply and demand combined with past sales data and marketing research regarding their target market can help a business with pricing and production decisions. Awareness of economic leading indicators and their relationship to a firm's industry and markets can help with operational planning and business strategy. Understanding economic ideas such as principal-agent problems , transaction costs , and the theory of the firm can help businesses design better compensation schemes, contracts, and corporate strategies. 

Bottom Line

Applied economics is an invaluable tool for public policymakers. Many economists are employed to predict both the macro- and microeconomic consequences of various policy proposals or to evaluate the effects of ongoing policy. Applied macroeconomic modeling is routinely used to project changes in unemployment, economic growth, and inflation at the national, regional, and state levels.

Understanding the way the economic incentives and compensating behaviors created by public policy impact real-world trends in things like job growth, migration, and crime rates is critical to implementing effective policy and avoiding unintended consequences . For example, understanding what the application of the laws of supply and demand implies about the effects of price floors, along with case studies and empirical research, can inform better policy regarding minimum wage laws.

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Applied Economics

The study of economic principles when they are applied to specific scenarios or situations

What is Applied Economics?

Applied economics is generally considered to be the study of economic principles when they are applied to specific scenarios or situations. In the study and research of economics, there exist two fundamental areas of distinction. The first being “core,” and the second being “applied.”

When something is a part of applied economics, one is taking academic principles discussed on the core side of economics and applying them to real-life and practical examples. It helps to better contextualize and exemplify the theoretical, and often abstract, concepts that are put forth within the core field of economic study.

Understanding Applied Economics

Applied economics reduces abstract concepts into examples that can be discussed and related to the business community at large. However, depending on whom you ask, what constitutes applied economics versus what constitutes core economics is open to interpretation.

A popular philosophy taught in many business schools as to what constitutes the field of economics more broadly is that economics is the study of whatever economists themselves do. For simplicity’s sake, the mainstream view of applied economics is generally thought of as consisting of the below:

• Labeling variables as core-specific
• Providing numerical estimates
• Interpreting real-world events
• Providing a structure to draw conclusions

Why is Mainstream Economics Important?

Understanding the world in which we live is pivotal to many economic theories. Economics helps explain market phenomena, such as corrections and recessions , or even why we as consumers are more inclined to purchase one product or another. Applied economics is at the center of everything we do, and it is pivotal to explaining and conveying market principles.

Business leaders and managers can draw on the lessons in applied economics in order to better avoid potential pitfalls and make stronger decisions as managers. Even everyday consumers can better understand the prices they are paying at the grocery store. It can help explain why certain prices rise and fall and why sales occur.

Variability in the Usage of the Term

Historically, the term applied economics is often applied to different areas of study. It is important to understand that the term is fluid and can depend on what period it is referencing or which author is writing about it.

The definition of the term is not fixed, and thus, the reader must also understand its possible wide range of uses and contextualization that may present themselves. The list below represents some classical uses of the term from the latter part of the 20 th century:

• Economic areas that are more specific and require more detail
• Demographics
• Accounting, actuarial science , and insurance

Real-World Problems Understood: The Value of Applied Economics

Applied economics helps us deal with real-world problems by making the abstract tangible. Understanding abstract theory is often not enough, and it must be tested and put into practice in order to effectively understand and critique economic concepts. Consumers, economists , and scholars alike can use applied economic theories to test existing concepts or even come up with new ones.

Understanding Applied Economics: A Summary

• In the study of economics, there exist two fundamental areas of distinction – core and applied.
• Applied economics is at the center of everything we do, and it helps explain economic theory and apply it to our everyday lives.
• Applied economics can help us understand more about the prices we pay, how delivery charges work, and why things may go on sale.
• Business leaders and managers can draw on the lessons from applied economics to make them better managers.
• Applied economic theories allow us to test and formulate hypotheses.

Related Readings

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™  certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

• Keynesian Economic Theory
• Government Stimulus Package
• Monetary Policy
• Quantity Theory of Money
• See all economics resources

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Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes!

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The power of economics to explain and shape the world

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Nobel Prize-winning economist Esther Duflo sympathizes with students who have no interest in her field. She was such a student herself — until an undergraduate research post gave her the chance to learn first-hand that economists address many of the major issues facing human and planetary well-being. “Most people have a wrong view of what economics is. They just see economists on television discussing what’s going to happen to the stock market,” says Duflo, the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics. “But what people do in the field is very broad. Economists grapple with the real world and with the complexity that goes with it.”

That’s why this year Duflo has teamed up with Professor Abhijit Banerjee to offer 14.009 (Economics and Society’s Greatest Problems), a first-year discovery subject — a class type designed to give undergraduates a low-pressure, high-impact way to explore a field. In this case, they are exploring the range of issues that economists engage with every day: the economic dimensions of climate change, international trade, racism, justice, education, poverty, health care, social preferences, and economic growth are just a few of the topics the class covers. “We think it’s pretty important that the first exposure to economics is via issues,” Duflo says. “If you first get exposed to economics via models, these models necessarily have to be very simplified, and then students get the idea that economics is a simplistic view of the world that can’t explain much.” Arguably, Duflo and Banerjee have been disproving that view throughout their careers. In 2003, the pair founded MIT’s Abdul Latif Jameel Poverty Action Lab, a leading antipoverty research network that provides scientific evidence on what methods actually work to alleviate poverty — which enables governments and nongovernmental organizations to implement truly effective programs and social policies. And, in 2019 they won the Nobel Prize in economics (together with Michael Kremer of the University of Chicago) for their innovative work applying laboratory-style randomized, controlled trials to research a wide range of topics implicated in global poverty. “Super cool”

First-year Jean Billa, one of the students in 14.009, says, “Economics isn’t just about how money flows, but about how people react to certain events. That was an interesting discovery for me.”

It’s also precisely the lesson Banerjee and Duflo hoped students would take away from 14.009, a class that centers on weekly in-person discussions of the professors’ recorded lectures — many of which align with chapters in Banerjee and Duflo’s book “Good Economics for Hard Times” (Public Affairs, 2019). Classes typically start with a poll in which the roughly 100 enrolled students can register their views on that week’s topic. Then, students get to discuss the issue, says senior Dina Atia, teaching assistant for the class. Noting that she finds it “super cool” that Nobelists are teaching MIT’s first-year students, Atia points out that both Duflo and Banerjee have also made themselves available to chat with students after class. “They’re definitely extending themselves,” she says. “We want the students to get excited about economics so they want to know more,” says Banerjee, the Ford Foundation International Professor of Economics, “because this is a field that can help us address some of the biggest problems society faces.”   Using natural experiments to test theories

Early in the term, for example, the topic was migration. In the lecture, Duflo points out that migration policies are often impacted by the fear that unskilled migrants will overwhelm a region, taking jobs from residents and demanding social services. Yet, migrant flows in normal years represent just 3 percent of the world population. “There is no flood. There is no vast movement of migrants,” she says. Duflo then explains that economists were able to learn a lot about migration thanks to a “natural experiment,” the Mariel boat lift. This 1980 event brought roughly 125,000 unskilled Cubans to Florida over a matter a months, enabling economists to study the impacts of a sudden wave of migration. Duflo says a look at real wages before and after the migration showed no significant impacts. “It was interesting to see that most theories about immigrants were not justified,” Billa says. “That was a real-life situation, and the results showed that even a massive wave of immigration didn’t change work in the city [Miami].”

Question assumptions, find the facts in data Since this is a broad survey course, there is always more to unpack. The goal, faculty say, is simply to help students understand the power of economics to explain and shape the world. “We are going so fast from topic to topic, I don’t expect them to retain all the information,” Duflo says. Instead, students are expected to gain an appreciation for a way of thinking. “Economics is about questioning everything — questioning assumptions you don’t even know are assumptions and being sophisticated about looking at data to uncover the facts.” To add impact, Duflo says she and Banerjee tie lessons to current events and dive more deeply into a few economic studies. One class, for example, focused on the unequal burden the Covid-19 pandemic has placed on different demographic groups and referenced research by Harvard University professor Marcella Alsan, who won a MacArthur Fellowship this fall for her work studying the impact of racism on health disparities.

Duflo also revealed that at the beginning of the pandemic, she suspected that mistrust of the health-care system could prevent Black Americans from taking certain measures to protect themselves from the virus. What she discovered when she researched the topic, however, was that political considerations outweighed racial influences as a predictor of behavior. “The lesson for you is, it’s good to question your assumptions,” she told the class. “Students should ideally understand, by the end of class, why it’s important to ask questions and what they can teach us about the effectiveness of policy and economic theory,” Banerjee says. “We want people to discover the range of economics and to understand how economists look at problems.”

Story by MIT SHASS Communications Editorial and design director: Emily Hiestand Senior writer: Kathryn O'Neill

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Prof. Esther Duflo will present her research on poverty reduction and her “proposal for a global minimum tax on billionaires and increased corporate levies to G-20 finance chiefs,” reports Andrew Rosati for Bloomberg. “The plan calls for redistributing the revenues to low- and middle-income nations to compensate for lives lost due to a warming planet,” writes Rosati. “It also adds to growing calls to raise taxes on the world’s wealthiest to help its most needy.”

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Applied Economics: Insights, Impact, and Everyday Applications

Last updated 03/28/2024 by

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What is applied economics?

Understanding applied economics, applied economics relevance in the real world, applied economics in business, applied economics for public policy, applied economics in daily life, case study: housing market trends, key insights.

• Understanding economic indicators in the housing market.
• Predicting price fluctuations using supply and demand analysis.
• Influencing informed decision-making for buyers and sellers.

Pros and cons of applied economics

• Improved decision-making
• Real-world problem-solving
• Applicability to business, policy, and personal decisions
• Potential oversimplification of complex issues
• Dependency on accurate economic models and data
• Challenges in predicting human behavior accurately

Behavioral economics and personal finance

The psychological factors at play, understanding the irrationalities, the intersection of economic theories and human behavior, practical applications in everyday life, the role of applied economics in behavioral finance, guiding informed financial choices, real-world implications, choosing a career path, navigating the housing market, personal financial decisions, enhancing decision-making in relationships, addressing global challenges, frequently asked questions, what distinguishes applied economics from theoretical economics, how does applied economics contribute to better decision-making in personal finance, can applied economics be beneficial for small businesses, what role does behavioral economics play in applied economics, how can policymakers utilize applied economics for effective decision-making, key takeaways.

• Applied economics informs decisions and predicts outcomes in real-world situations.
• It is a valuable tool in business planning, public policy analysis, and personal finance.
• Understanding economic theories enhances decision-making for individuals, businesses, and policymakers.
• Behavioral economics provides insights into how psychological factors influence economic choices.
• Applied economics is crucial for small businesses, aiding in pricing strategies, production decisions, and operational planning.

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Applied Economics

Applied Economics: An Overview

As the name implies, applied economics focuses on the practical application of theoretical concepts in the field. This field of study is not based solely on a single economic principle. Instead, it takes into account all of the subject's guiding concepts. It applies them in the relevant sectors to understand the impact of selected alternatives on an individual, policy-maker, and commercial decision-making.

A few concepts and principles that contribute to the effectiveness of applied economics are econometrics, the marginal principle, opportunity cost, the principle of voluntary returns, the rule of declining marginal utility , and the real/nominal principle.

Application of economics

Applied economics is the application of economic theory to forecast the likely outcomes of various real-world actionable options. We can help people make better decisions by helping them understand the potential consequences of their decisions, whether they are made by individuals, businesses, or policymakers. If applied economics is a tool for determining the best methods to achieve those goals, then applied economics is the science that studies how people use the various, limited means at their disposal to achieve specific goals. As a result, applying economics can produce "to-do" lists for actions that can be taken to increase the likelihood of successful outcomes in actual events.

Application of Applied Economics

When employing applied economics , it may be necessary to first consider economic theories in order to formulate questions about a scenario or circumstance before utilising data sources and other frames of reference to arrive at a workable response. The concept is to establish a hypothetical result based on the specific current circumstances and using known ramifications of basic economic rules and models.

Importance of studying economics

Some points that states the importance of studying economics are given below:

Better Understanding of Surroundings: People who study economics have a better understanding of their surroundings. It allows people to understand other people, organisations, markets, and governments, allowing them to respond better to the challenges and opportunities that arise when circumstances change.

Wide Range of Careers: Economics majors are well-suited for a wide range of careers, including law, risk management , actuarial work, finance, foreign policy, public administration, politics, policy analysis, health administration, entrepreneurship, market research, journalism, undiscovered fields of the future.

Foundation for Analysing Public Policy: Economics provides the primary foundation for analysing public policy. Majors are better equipped to understand the underlying political concerns that influence economic and social outcomes.

Understanding related issues: An economist understands both the broad issues of generational consequences, welfare implications, and inequality, as well as the specific issues of tradeoffs, benefits versus costs, market failure, and public finance.

Participation in Public Policy Discussion: Students who major in economics have the knowledge and skills to participate in public policy discussions and take action to promote economic and social growth.

Uses of economics

Economics teaches you to think strategically and make decisions that maximise the outcome. People with economic and finance backgrounds are in high demand because they are well-qualified for positions in the banking and financial industries, such as accounting firms.

Because of the well-developed methodology used in the field, economics has grown to include instruments for many other disciplines, including politics, law, health, education, and management. Some are concerned that by employing economic principles, the assumption is made that people behave logically. To combat this, economists are incorporating knowledge from behavioural science, psychology, and neuroscience.

How applied economics works? Explain with examples.

Let's look at an example from applied economics to help you understand the concept:

Customers typically look forward to purchasing items at significant discounts or for free. As a result, marketers use this proclivity to exaggerate the cost of their items while indicating the true price.

For example, brand A charges 30 Dollar for a T-shirt with a market value of only 20 Dollar. On the other hand, during the holiday season, it announces a year-end sale and offers a $10 discount on the same T-shirt. As a result, even after offering discounts, the company sells the T-shirt at its original price, and customers are thrilled to get it at a significant discount.

The preceding example shows how to use a pricing strategy based on applied economics to determine market consumer behaviour.

Uses of Applied Economics

Whether a company decides to buy an asset or sets the price at which it will sell its goods and services to customers, applied economics can help. This field of study is critical for addressing problems that applied mathematics and accounting cannot.

However, in order for this topic to be applied, some assumptions must be made. Typically, economic analysis is performed for a large audience. As a result, such broad rules may not apply to specific situations, such as specific locations or markets.

FAQs on Applied Economics

1. Applied economics is the application of economic theory to forecast the likely outcomes. Explain what is applied economics and management in detail.

Applied economics and management is concerned with the application of theoretical concepts to a specific problem, condition, or cause. It extends the application of economics from the text to the real world, using it as a tool rather than simply articulating the theory. The main goal is to ensure that people understand economics well enough to make sound decisions based on accurate assessment and analysis of various factors. Furthermore, it seeks to raise the standard of business conduct by implementing accepted ethical standards, improving daily life, developing policies that benefit the general public, and making pertinent decisions with these considerations in mind. It is critical to study the subject because it allows decision-makers, policymakers, and business leaders to understand how their actions affect the decisions they make.

2. Explain some examples of applied economics.

Let's look at some of the contemporary applications of applied economics.

Environmental Economics: How much more expensive are market-based environmental incentives versus command-and-control environmental regulation? How can carbon emissions be assessed? Should we? Applied economics is used to frame solutions to these problems.

How can economic principles and cognitive psychology be used to analyse and predict human behaviour in behavioural economics? In practice, economics explains how.

Law and economics are inextricably linked fields. The legislation codifies ethics, markets, and human behaviour. Applied economics predicts the best way to put those laws into action.

3. How does applied economics address economic issues?

In the social sciences, the term "applied economics" refers to the application of economics to various aspects of society. In contrast, core economics investigates economic theory but lacks practical applications. Applied economics assists in the resolution of economic issues by providing knowledge about how individuals, organisations, and governments behave. As a result, economic actors may be able to solve problems and make better decisions. Economists, for example, may explain how markets work by demonstrating behaviours that have costs and more, allowing businesses and individuals to avoid those costs and find solutions to their problems.

News / Insights

Campus news and industry insights from boston college, economics vs. applied economics: scientific insight for practical problem-solving.

When we hear news reports about monetary policy, GDP, job reports, consumer spending, etc., we think about economics. While these are all important elements of economics, they don’t tell the whole story. By considering economics vs. applied economics, we begin to see its broad scope in society, as well as in our daily lives.

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

Whereas we often think of economics as an esoteric discipline removed from our everyday experience, we see applied economics applying that discipline to real-world issues that affect us all.

Applied Economics: The Science of the Possible

Politics is, according to a well-worn aphorism, the “art of the possible.” Put another way, politics is the art of governance, how we structure and organize our social life. If politics is the art of social organization, applied economics is the tangible science of social organization.

Dr. Aleksandar (Sasha) Tomic , Program Director of Master of Science in Applied Economics at Boston College’s Woods College of Advancing Studies, says applied economics is “thinking about the way things fit together.”

“Economists do not have to be tied to what we think of as the traditional economist career.” In fact, through applied economics, we have the analytical tools to glean insight from data. Applied economics informs policy and decision-making across all sectors of society, public and private.

Five Examples of Applied Economics

Let’s look at five ways we use applied economics in our modern world.

• Environmental Economics : What is the cost of command-and-control environmental regulation vs. market-based incentives? How do we put a price on carbon emissions? Should we? Applied economics helps frame solutions for these questions.
• Behavioral Economics: How do we employ economic insights and analysis with cognitive psychology to predict how people behave in specific contexts? Applied economics shows us how.
• Law and Economics: The two are inexorably intertwined. Laws codify ethics and markets, and human behavior. Applied economics predicts how those laws are best implemented.
• Marketing and Economics: Effective marketing relied on informed, evidence-based decision-making. Consumer behavior, policy and ethics, market analysis, and projecting profit-and-loss determine any marketing initiative’s success. Applied economics offers the analytical tools to incorporate each element into an integrated whole.
• Healthcare Economics : Even before COVID-19 gripped the world, healthcare was an industry in rapid transition and under severe stress. Predictive analysis, resource allocation, and determining policy initiatives that support public health are critical roles for applied economics in healthcare.

The fact is, all social factors working together for the shared benefit of all is the purview of applied economics. In a sense, we are all economists now.

Applied Economics and The T-Shaped Professional

The practical knowledge and skills gained from applied economics are relevant for leaders and decision-makers in any context . Based on core economic principles, applied economics focuses on implementation more than theory. It comes down from the tower and gets into the nitty-gritty details of how things work.

Learning how to apply these concepts creates a breadth of knowledge complementing the depth of expertise in any specific field. This results in the “ T-shaped professional ,” someone able to apply broad analytical, ethically sound, collaborative skills to the issues at hand. These are the people who understand the challenges, know how to collect and analyze the pertinent data to find a solution, and then communicate their insight to their peers.

Graduate studies in applied economics develop what Dr. Tomic calls the “economic intuition” organizations of all types seek in a complex world. The T-shaped professional who understands how things fit together.

Online Master’s in Economics

The online Master of Science in Applied Economics program from Boston College is your path to more significant influence as you help shape a better world.

Students entering the program join a global network of over 180,000 alumni, sharing their insight as they hone their analytical and leadership skills solving real-world problems .

The MSAE program curriculum provides students the skills necessary to analyze and interpret data across various fields, contexts, and disciplines. With these skills, graduates can play key roles in mapping solutions and informing crucial technical and policy decisions.

Some of the areas of study in this wide-ranging (think “T-shaped”) program include:

• Fundamental theory : Examine the theoretical principles of micro and macroeconomic theory.
• Data analysis : Learn the tools and methods of data analysis, interpretation, forecasting, and predictive analysis: study Big Data Econometrics and the rapid advance of machine learning.
• Law and economics : Explore how markets function. Analyze how firms relate to markets. Consider market regulation and its influence on competition, innovation, pricing, and organizational strategy.
• Ethics and public policy : The art and science of the possible. Investigate how public policy is made and implemented. Evaluate when it’s best to regulate or legislate. Assess the role (or lack thereof) that ethical consideration plays in how policy is formed.
• Behavioral economics : The intersection of economic and cognitive sciences. A fascinating look at why people do what they do and what influences lead to better individual decisions.

The program entails five required core courses and over two dozen electives. With a wide variety of elective study areas, students can tailor the program to their needs and interests. Ten courses are needed to earn a Master of Science in Applied Economics degree.

If you are ready to advance your career influencing policy and decision-making in the private or public sphere, earning an MSAE degree at Boston College is an excellent first step.

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1.3 How Economists Use Theories and Models to Understand Economic Issues

Learning objectives.

By the end of this section, you will be able to:

• Interpret a circular flow diagram
• Explain the importance of economic theories and models
• Describe goods and services markets and labor markets

John Maynard Keynes (1883–1946), one of the greatest economists of the twentieth century, pointed out that economics is not just a subject area but also a way of thinking. Keynes ( Figure 1.6 ) famously wrote in the introduction to a fellow economist’s book: “[Economics] is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions.” In other words, economics teaches you how to think, not what to think.

Watch this video about John Maynard Keynes and his influence on economics.

Economists see the world through a different lens than anthropologists, biologists, classicists, or practitioners of any other discipline. They analyze issues and problems using economic theories that are based on particular assumptions about human behavior. These assumptions tend to be different than the assumptions an anthropologist or psychologist might use. A theory is a simplified representation of how two or more variables interact with each other. The purpose of a theory is to take a complex, real-world issue and simplify it down to its essentials. If done well, this enables the analyst to understand the issue and any problems around it. A good theory is simple enough to understand, while complex enough to capture the key features of the object or situation you are studying.

Sometimes economists use the term model instead of theory. Strictly speaking, a theory is a more abstract representation, while a model is a more applied or empirical representation. We use models to test theories, but for this course we will use the terms interchangeably.

For example, an architect who is planning a major office building will often build a physical model that sits on a tabletop to show how the entire city block will look after the new building is constructed. Companies often build models of their new products, which are more rough and unfinished than the final product, but can still demonstrate how the new product will work.

A good model to start with in economics is the circular flow diagram ( Figure 1.7 ). It pictures the economy as consisting of two groups—households and firms—that interact in two markets: the goods and services market in which firms sell and households buy and the labor market in which households sell labor to business firms or other employees.

Firms produce and sell goods and services to households in the market for goods and services (or product market). Arrow “A” indicates this. Households pay for goods and services, which becomes the revenues to firms. Arrow “B” indicates this. Arrows A and B represent the two sides of the product market. Where do households obtain the income to buy goods and services? They provide the labor and other resources (e.g., land, capital, raw materials) firms need to produce goods and services in the market for inputs (or factors of production). Arrow “C” indicates this. In return, firms pay for the inputs (or resources) they use in the form of wages and other factor payments. Arrow “D” indicates this. Arrows “C” and “D” represent the two sides of the factor market.

Of course, in the real world, there are many different markets for goods and services and markets for many different types of labor. The circular flow diagram simplifies this to make the picture easier to grasp. In the diagram, firms produce goods and services, which they sell to households in return for revenues. The outer circle shows this, and represents the two sides of the product market (for example, the market for goods and services) in which households demand and firms supply. Households sell their labor as workers to firms in return for wages, salaries, and benefits. The inner circle shows this and represents the two sides of the labor market in which households supply and firms demand.

This version of the circular flow model is stripped down to the essentials, but it has enough features to explain how the product and labor markets work in the economy. We could easily add details to this basic model if we wanted to introduce more real-world elements, like financial markets, governments, and interactions with the rest of the globe (imports and exports).

Economists carry a set of theories in their heads like a carpenter carries around a toolkit. When they see an economic issue or problem, they go through the theories they know to see if they can find one that fits. Then they use the theory to derive insights about the issue or problem. Economists express theories as diagrams, graphs, or even as mathematical equations. (Do not worry. In this course, we will mostly use graphs.) Economists do not figure out the answer to the problem first and then draw the graph to illustrate. Rather, they use the graph of the theory to help them figure out the answer. Although at the introductory level, you can sometimes figure out the right answer without applying a model, if you keep studying economics, before too long you will run into issues and problems that you will need to graph to solve. We explain both micro and macroeconomics in terms of theories and models. The most well-known theories are probably those of supply and demand, but you will learn a number of others.

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Applying economics in everyday life

At the start of the academic year, I always feel a little pressure to justify the study of economics. Students come up asking things like, should they do economics or history? It’s hard to know what to say, but to get people excited about economics it’s good to try and think how economics can be applied in everyday life. Some of this is just common sense, but economics can help put a theory behind our everyday actions.

Buying goods which give the highest satisfaction for the price

This is common sense, but in economics, we give it the term of marginal utility theory. The idea is that a rational person will be evaluating how much utility (satisfaction) goods and services give him compared to the price. To maximise your overall welfare, you will consume a quantity of goods where total utility is maximised given your budget. For example, is it worth paying extra charges by airlines, such as paying for more leg-room? Or pay to get priority boarding? Economics suggests we need to evaluate the marginal benefit of these services compared to the marginal cost. See: Extra charges by airlines

Sunk cost fallacy

A sunk cost is an irretrievable cost, something we cannot get back. For example, suppose we sign up for a gym membership at $40 a month for a whole year. We are committed to paying $480, whether we go or not. If we are feeling unwell, should we go to the gym to get our money’s worth or should we write off the sunk cost and maximise our marginal utility for that particular day? See: sunk cost fallacy

Opportunity Cost

The first lesson of economics is the issue of scarcity and limited resources. If we use our limited budget for buying one type of good (food), there is an opportunity cost – we cannot spend that money on other goods such as entertainment. Opportunity cost is an intrinsic aspect of most economic choices. We may like the idea of lower income tax, but there will be an opportunity cost – in this case, less government revenue to spend on health care and education.

There’s no such thing as free parking

Another example of opportunity cost – no one likes to pay for parking, but would we be better off if parking was free? Most likely not. If parking was free, demand might be greater than supply causing people to waste time driving around looking for a parking spot. Free parking would also encourage people to drive into city centres rather than use more environmentally friendly forms of transport. The result would be that free parking would increase congestion; therefore although we would pay less for parking, we would face other indirect costs. (time wasted)

Behavioural economics and bias

Traditional economic theory assumes that man is rational. However, the work of behavioural economics suggests we can be prone to bias and irrational behaviour. For example, we may be prone to a present bias where we overvalue pleasure in the short-term and ignore long-term implications. For example, consuming demerit goods like alcohol or not saving sufficiently for retirement. The insight of present bias suggests we make decisions our future self would not make. If we become aware of these bias and irrational behaviour, then we can make better decisions which improve our long-term welfare.

See: Behavioural economics

Irrational exuberance

Another issue in behavioural economics is that of irrational exuberance or when we get carried away by an asset bubble. Can we be sure we will not get carried away by a boom and bubble? History suggests that many investors are over-optimistic about their ability to leave the market at the optimal time and can feel that this time is different.

See: Irrational exuberance

On the other hand

In economics, there’s always another way of looking at the world. Borrowing is bad, except when it isn’t. Nothing is black and white in economics; it depends. For example, government borrowing to finance pensions for an ageing population can lead to an unsustainable rise in government debt. However, government borrowing during a recession can help the economy recover.

Diminishing returns

If we like chocolate cake, why do we not eat three per day? The reason is diminishing returns. The first chocolate cake may give us 10/10. The second cake 3/10. The third cake may make us sick and give a negative utility. People may have different opinions about when diminishing returns set in. Some students may feel this is after the second pint, other students only after considerably more. There are also diminishing returns to money. That is why we don’t spend all our time working –  extra money gives increasingly less satisfaction and reduces leisure time

DIminishing returns to wealth/income

A similar concept is that of diminishing returns to wealth and income. Does an extra $100 give us more utility? Yes, but it depends on our current income. If we have a very low salary, the extra $100 will make a big difference. But, if we earn $100,000 a year, we may not notice that extra $100 a year. The importance of this is for choosing the right balance between work and leisure. What is the value in working a long working week, if the extra money earnt has a limited marginal utility?

Externalities

Economics may feel we are promoting selfish ends – firms maximise profits, consumers maximise their personal utility. Adam Smith claimed pursuing selfish goals ended up in improving the greater good. But, in economics, we also try to consider the impact of our actions on other people. If a firm produces chemicals, it may make a profit, but cause an external cost of pollution. To ignore this external cost would be to create an inefficient outcome. We should make the firm pay the cost of its pollution so that it has the incentive to minimise or halt external costs. Externalities are everywhere. Even your decision to study economics could have positive externalities in the future. For example, you could end up being an economics teacher helping others learn all about economics.

Public goods not provided by the free market .

The free market has many advantages. Private firms tend to be more efficient, innovative and respond to consumer preferences. However, many goods and services would either be not provided or under-provided in a free market. Public goods like street lighting and law and order. Also, public services like health care and education would be provided in insufficient quantities. Therefore, to optimise social welfare there is a need for government intervention through taxes and direct public provision. We may dislike taxes, but we would dislike not being able to see a doctor.

Should I worry about automation and new technology?

There are concerns that new technology and automation will lead to job losses and some people losing out. If our job is threatened by new technology is the fear justified? Economic analysis suggests there it is a fallacy that new technology leads to permanent job losses. This is known as the Luddite Fallacy – though some jobs are lost, new ones are created. Automation and new technology are not guaranteed to make everyone better off – especially in the short term. See: Pros and cons of automation

Macroeconomics affects everyone

Everyone is affected in some way by macroeconomic issues such as inflation and unemployment. Inflation can reduce the value of your savings. If you keep cash under your bed during high inflation, you’d be better off trying to buy gold or some physical assets. Mass unemployment can cause society to fragment, therefore there is a need to adopt policies to try and reduce unemployment.

Life-cycle hypothesis

The Life Cycle Hypothesis states that to maximise lifetime utility, we should try to smooth our consumption patterns over the course of our life. It is not good to have substantial income when we are old and unable to move. Spending some money in our student years will give greater overall utility. This justifies taking out a student loan to pay back when we are working and then saving for a pension in our retirement.

Examples of economics in everyday life

• Is the price of Starbucks a rip-off?
• Is it rational to put money in an honesty box?
• How will you be affected by a devaluation of the Pound?
• How will you be affected by low-interest rates?
• How will you be affected by a recession?
• 10 reasons to study economics

Last updated: 10th November 2021, Tejvan Pettinger , www.economicshelp.org, Oxford, UK

11 thoughts on “Applying economics in everyday life”

Very nice article especially to beginners (students). It’s easily understandable.

interesting

Great, i like economics, its interesting and fascinating.

THEN BATTER THINKS TO DEVLOPMENT A APPLICATION ON PREFROM A APPLICATION TO ECONOMICALS THINKS IN HUMAN ON UNDER CONNECTION IN HUMAN THINKS

concepts are very clear and nite becouse initially importance of economics..

Very easily explained.Make more like these.

make a poem about economics using many different economic topics and email it back to me please its for an economics project !!!

Being an economics student ,it is Very informative for me ….

Very comprehensive thoughts. The application of both micro and macro economics in daily life is lot yet people don’t realize. For example , when you go to mall to purchase your daily needs or other products, you simply calculate opportunity cost between two products. And as a rationale consumer select one product over other who’s marginal value is more. Soon meet you with more such concepts

I like this. I really helps me as I have to constantly explain these concepts everyday. It’s just nice to know others feel the same.

Quote inspiring. Our everyday application of Economics concepts are enormously. We always use public roads ,streetlights, sewer lines and public security. We also complain about those not using them well without knowing that once these goods and services are provides, we can not stop others from using it, neither can the consumption by others reduce the quantity available for our consumption.

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Using research to solve real world problems

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By Rebecca Knight

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

In India, a country with a population of 1.2bn, fewer than 30 per cent of citizens have a passport, driver’s licence or other form of identification.

It may seem a minor point, except that the absence of these documents makes it difficult to apply for a bank account, obtain a mobile phone or even receive the government subsidies for education and food that individuals are entitled to.

But according to a new survey led by Arun Sundararajan, an associate professor of information, operations and management sciences at New York University’s Stern School of Business and a group of his students, that is changing. A government-sponsored project that began towards the end of 2010 to give every person in India a unique 12-digit ID number is showing signs of success. If enrolment continues according to projections, Prof Sundararajan reckons that about 300m citizens who previously did not have a portable ID will have one by the end of the year.

“It’s a moon-shot project,” says Prof Sundararajan. “It’s having a transformative impact on the lives of hundreds of millions of people.”

It is also, he hopes, a project that will have a transformative impact on the careers of the dozen MBA students who are working with him on the survey. The survey, which is analysing the impact of India’s Unique Identity project, is part of the Stern Consulting Corps programme.

International trips provide hands-on experience

To try to better prepare students to operate in the global economy, a number of leading business schools have introduced courses for MBAs to embark on international consulting projects.

The courses are designed to give students an applied learning experience that is very different from the one they receive on campus.

Harvard Business School , for instance, recently launched a year-long required course for its first-year students called “Field Immersion Experiences for Leadership Development”, or Field for short. The capstone of the course is a week-long trip to a developing country where student teams work closely with a company to develop an idea for a product or service.

Last year, projects were based in cities including Cape Town, Mumbai, Shanghai, Warsaw and Buenos Aires.

“Our aspiration is that it becomes so self-evident about how valuable this is that other schools do it too,” says Youngme Moon, who chairs HBS’s MBA programme.

Massachusetts Institute of Technology’s Sloan School , meanwhile, has expanded its G-Lab course in which students work with the management of overseas start-ups. Student teams work remotely from MIT for three months and full-time at their host companies for at least three weeks. Last year students worked on projects in Kenya, Colombia, Indonesia and other countries.

While some schools may view courses with an international consulting component as a way to “teach students how to be [a] consultant, it’s very much meant to be an interesting learning challenge,” says Michellana Jester, director of Sloan’s action learning programme.

According to her, business schools are using these courses to strike the right balance between academic rigour and relevance. “Scholarship is important and research is important, but how do you make it relevant for students in business schools today?

“It’s a transition for business schools right now in terms of how we navigate this,” she says.

SCC, an elective course now in its 10th year, began as a programme that placed students with local non-profits on 10-week project engagements. This year, for the first time, students worked on projects in emerging markets linked to faculty research. This new element provides students with vivid illustrations of how academic research can be used to solve real world problems.

“What [students] are gaining from this is an understanding of the potential of business to be an agent of social change,” says Prof Sundararajan. “It’s one thing to be exposed to examples of this in a textbook, it’s another to witness it first hand.”

As top schools strive to infuse their curricula with more hands-on learning experiences by adding overseas exchange programmes and class consulting projects in far-flung corners of the world, SCC stands out for its emphasis on research.

The new focus of the SCC programme reflects the increasing interest from MBA students in using their degrees to work on social policy issues. The programme is popular on campus: more than 100 students participated in the programme this past academic year and applications to the SCC rose 117 per cent this spring compared with last year.

Academic research is often accused of being ponderous, narrow and detached from the real world. But there is a new wave of research coming out of schools today that concerns how government and business can work together to solve big social problems, according to Professor Peter Henry, Stern’s dean.

There is also a growing recognition on the part of management faculty that the type of research they conduct about corporations has potentially broad applications for other kinds of organisations.

“There is a false dichotomy between research and the real world,” says Prof Henry. “Research can have a real impact.”

One group of students, for instance, worked on a business plan for a city that is being developed in Honduras. Because the city is a new concept, the business plan will have a direct effect on policy decisions in the country.

The students, under the supervision of Professor Paul Romer who heads the Urbanization Project, a research centre at Stern that focuses on urban growth and governance in the developing world, spent the semester devising potential scenarios for the city, such as population growth models and potential financial rules and regulations, as well as working up infrastructure estimates and writing policy briefs. Some of their findings were presented in a meeting Prof Romer had with Octavio Sánchez, chief of staff to the Honduran president.

“We’re getting students into the world through the lens of research,” says Prof Henry. “We’re giving students the chance to say, ‘I didn’t just take a set of classes. I built something’.”

Throughout the projects, students work closely with a faculty member and often develop the type of mentoring relationship that has typically been the province of PhD programmes. Teams also work with an outside mentor from a top-tier consulting company.

Students hone their analytical skills, but are also able to practise their professional responsibilities such as meeting a timeline and soliciting feedback from a client.

“The learning experience for the students was better than I expected,” says Prof Romer. “What they learnt was not just how to think abstractly about governance and fiscal policy – the kind of things you have to think about when you’re creating a new city – but also how will you work in teams, how will you divide tasks, what will you do when one sub-team gets stuck.”

The fact that students were working on a project with real world implications “lent more urgency to the group effort”, he says. “People are taking real decisions on [the students’ work]. A term paper doesn’t really matter. This goes out of the realm of a pretend exercise and makes it real.”

For students, the risk of working on such an engrossing project is that it can make other business school assignments seem dull or unworthy by comparison.

But Benjamin Wise, a student who worked on the Honduras project, says that it forced him to think about how to apply concepts learnt in the classroom.

“I’d be sitting in my corporate finance class on the edge of my seat because we were learning about a financial model that I couldn’t wait to plug in to [one of the models in] my project,” he says.

Prof Sundararajan says that spending a week in India was an eye-opening experience for his students.

“I could see them immersed in the context. They gained a clearer understanding of the breadth of vision and they could see what the problem was.

“This is the kind of immersive experiential learning that alters the worldview of students.”

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Real-world economics

Use aea articles and podcasts to illustrate concepts in economics.

The used car market is a useful example of the lemons problem, but after a while it can get old. There are additional ways of discussing asymmetric information that illustrate the concept while sparking conversation and grounding the idea in a real-world example.

The AEA's Research Highlights series can help, with short articles and podcasts that feature papers published in AEA journals , the authors' findings, and how they relate to the world around us. Many focus on a central concept and can supplement more traditional classroom readings. The Journal of Economic Perspectives ( JEP ) is also a good resource for accessible material that relates to everyday economics.

Adverse selection

• How health insurance markets work (and fail)  | Research Highlights Article
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Asymmetric information

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Behavioral economics

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Comparative advantage

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Deadweight loss

• Gift exchanges tend to create deadweight loss | Research Highlights Article
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Discount rate

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Externality

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Federal Reserve

• The downside of central bank transparency | Research Highlights Article
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• Landings, Soft and Hard: The Federal Reserve, 1965–2022 | JEP Article

Financial crisis

• What does growing bank interconnectedness mean for future crises? | Research Highlights Article
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Game theory

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Human capital

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Market failures

• Consumers do not always buy energy-efficient products, even when they would save money  | Research Highlights Article
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Market concentration

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Moral hazard

• Patients don’t seem to care about how much their hospital visit costs | Research Highlights Article

Opportunity cost

• How citizenship changes the opportunity cost of crime | Research Highlights Article

Phillips Curve

• Understanding the 1960s debate on inflation and unemployment can shed light on today's economy  | Research Highlights Article

Public good

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Randomized controlled trial

• Scaling up RCTs to policy is a difficult but necessary goal for economists  | Research Highlights Article

Resource curse

• The 2000s commodity boom spurred Africa’s economy, but at what cost? | Research Highlights Article

Risk aversion

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Social capital

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Specialization

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State building

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Supply and demand

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• A tax spike on companies after layoffs is discouraging them from rehiring when business turns around.  | Research Highlights Article
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Unemployment

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2022 Australia Awards Scholarship Essay - Applied economics

Prompt: why did you choose your proposed course(s) and institution(s).

Home » Applied Research – Types, Methods and Examples

Applied Research – Types, Methods and Examples

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Applied Research

Definition:

Applied research is a type of scientific inquiry that focuses on developing practical solutions to real-world problems. It involves the use of existing knowledge, theories, and techniques to address specific problems or challenges in a particular field or industry.

Applied research is often conducted in collaboration with industry or government partners, who provide funding and expertise to support the research. The results of applied research are typically intended to be directly applicable to the real world, and may involve the development of new products, technologies, or processes.

Types of Applied Research

Types of Applied Research are as follows:

Action Research

This type of research is designed to solve specific problems within an organization or community. The research involves collaboration between researchers and stakeholders to develop solutions to issues that affect the organization or community.

Evaluation Research

This type of research is used to assess the effectiveness of a particular program, policy, or intervention. Evaluation research is often used in government, healthcare, and social service settings to determine whether programs are meeting their intended goals.

Developmental Research

This type of research is used to develop new products, technologies, or processes. The research may involve the testing of prototypes or the development of new methods for production or delivery.

Diagnostic Research

This type of research is used to identify the causes of problems or issues. Diagnostic research is often used in healthcare, where researchers may investigate the causes of a particular disease or condition.

Policy Research

This type of research is used to inform policy decisions. Policy research may involve analyzing the impact of existing policies or evaluating the potential outcomes of proposed policies.

Predictive Research

This type of research is used to forecast future trends or events. Predictive research is often used in marketing, where researchers may use data analysis to predict consumer behavior or market trends.

Data Collection Methods

In applied research, data collection methods can be broadly classified into two categories: Quantitative and Qualitative methods:

Quantitative Data Collection

Quantitative research methods involve collecting numerical data that can be analyzed statistically. The most commonly used quantitative data collection methods in applied research include:

• Surveys : Surveys are questionnaires designed to collect data from a large sample of people. Surveys can be conducted face-to-face, over the phone, or online.
• Experiments : Experiments involve manipulating variables to test cause-and-effect relationships. Experiments can be conducted in the lab or in the field.
• Observations : Observations involve watching and recording behaviors or events in a systematic way. Observations can be conducted in the lab or in natural settings.
• Secondary data analysis: Secondary data analysis involves analyzing data that has already been collected by someone else. This can include data from government agencies, research institutes, or other sources.

Qualitative Data Collection

Qualitative research methods involve collecting non-numerical data that can be analyzed for themes and patterns. The most commonly used qualitative data collection methods in applied research include:

• Interviews : Interviews involve asking open-ended questions to individuals or groups. Interviews can be conducted in-person, over the phone, or online.
• Focus groups : Focus groups involve a group of people discussing a topic with a moderator. Focus groups can be conducted in-person or online.
• Case studies : Case studies involve in-depth analysis of a single individual, group, or organization.
• Document analysis : Document analysis involves analyzing written or recorded documents to extract data. This can include analyzing written records, audio recordings, or video recordings.

Data Analysis Methods

In applied research, data analysis methods can be broadly classified into two categories: Quantitative and Qualitative methods:

Quantitative Data Analysis

Quantitative data analysis methods involve analyzing numerical data to identify patterns and trends. The most commonly used quantitative data analysis methods in applied research include:

• Descriptive statistics: Descriptive statistics involve summarizing and presenting data using measures such as mean, median, mode, and standard deviation.
• Inferential statistics : Inferential statistics involve testing hypotheses and making predictions about a population based on a sample of data. This includes methods such as t-tests, ANOVA, regression analysis, and correlation analysis.
• Data mining: Data mining involves analyzing large datasets to identify patterns and relationships using machine learning algorithms.

Qualitative Data Analysis

Qualitative data analysis methods involve analyzing non-numerical data to identify themes and patterns. The most commonly used qualitative data analysis methods in applied research include:

• Content analysis: Content analysis involves analyzing written or recorded data to identify themes and patterns. This includes methods such as thematic analysis, discourse analysis, and narrative analysis.
• Grounded theory: Grounded theory involves developing theories and hypotheses based on the analysis of data.
• Interpretative phenomenological analysis: Interpretative phenomenological analysis involves analyzing data to identify the subjective experiences of individuals.
• Case study analysis: Case study analysis involves analyzing a single individual, group, or organization in-depth to identify patterns and themes.

Applied Research Methodology

Applied research methodology refers to the set of procedures, tools, and techniques used to design, conduct, and analyze research studies aimed at solving practical problems in real-world settings. The general steps involved in applied research methodology include:

• Identifying the research problem: The first step in applied research is to identify the problem to be studied. This involves conducting a literature review to identify existing knowledge and gaps in the literature, and to determine the research question.
• Developing a research design : Once the research question has been identified, the next step is to develop a research design. This involves determining the appropriate research method (quantitative, qualitative, or mixed methods), selecting the data collection methods, and designing the sampling strategy.
• Collecting data: The third step in applied research is to collect data using the selected data collection methods. This can include surveys, interviews, experiments, observations, or a combination of methods.
• Analyzing data : Once the data has been collected, it needs to be analyzed using appropriate data analysis methods. This can include descriptive statistics, inferential statistics, content analysis, or other methods, depending on the type of data collected.
• Interpreting and reporting findings : The final step in applied research is to interpret the findings and report the results. This involves drawing conclusions from the data analysis and presenting the findings in a clear and concise manner.

Applications of Applied Research

Some applications of applied research are as follows:

• Product development: Applied research can help companies develop new products or improve existing ones. For example, a company might conduct research to develop a new type of battery that lasts longer or a new type of software that is more efficient.
• Medical research : Applied research can be used to develop new treatments or drugs for diseases. For example, a pharmaceutical company might conduct research to develop a new cancer treatment.
• Environmental research : Applied research can be used to study and address environmental problems such as pollution and climate change. For example, research might be conducted to develop new technologies for reducing greenhouse gas emissions.
• Agriculture : Applied research can be used to improve crop yields, develop new varieties of plants, and study the impact of pests and diseases on crops.
• Education : Applied research can be used to study the effectiveness of teaching methods or to develop new teaching strategies.
• Transportation : Applied research can be used to develop new technologies for transportation, such as electric cars or high-speed trains.
• Communication : Applied research can be used to improve communication technologies, such as developing new methods for wireless communication or improving the quality of video calls.

Examples of Applied Research

Here are some real-time examples of applied research:

• COVID-19 Vaccine Development: The development of COVID-19 vaccines is a prime example of applied research. Researchers applied their knowledge of virology and immunology to develop vaccines that could prevent or reduce the severity of COVID-19.
• Autonomous Vehicles : The development of autonomous vehicles involves applied research in areas such as artificial intelligence, computer vision, and robotics. Companies like Tesla, Waymo, and Uber are conducting extensive research to improve their autonomous vehicle technology.
• Renewable Energy : Research is being conducted on renewable energy sources like solar, wind, and hydro power to improve efficiency and reduce costs. This is an example of applied research that aims to solve environmental problems.
• Precision Agriculture : Applied research is being conducted in the field of precision agriculture, which involves using technology to optimize crop yields and reduce waste. This includes research on crop sensors, drones, and data analysis.
• Telemedicine : Telemedicine involves using technology to deliver healthcare remotely. Applied research is being conducted to improve the quality of telemedicine services, such as developing new technologies for remote diagnosis and treatment.
• Cybersecurity : Applied research is being conducted to improve cybersecurity measures and protect against cyber threats. This includes research on encryption, network security, and data protection.

Purpose of Applied Research

The purpose of applied research is to solve practical problems or improve existing products, technologies, or processes. Applied research is focused on specific goals and objectives and is designed to have direct practical applications in the real world. It seeks to address problems and challenges faced by individuals, organizations, or communities and aims to provide solutions that can be implemented in a practical manner.

The primary purpose of applied research is to generate new knowledge that can be used to solve real-world problems or improve the efficiency and effectiveness of existing products, technologies, or processes. Applied research is often conducted in collaboration with industry, government, or non-profit organizations to address practical problems and create innovative solutions.

Applied research is also used to inform policy decisions by providing evidence-based insights into the effectiveness of specific interventions or programs. By conducting research on the impact of policies and programs, decision-makers can make informed decisions about how to allocate resources and prioritize interventions.

Overall, the purpose of applied research is to improve people’s lives by developing practical solutions to real-world problems. It aims to bridge the gap between theory and practice, and to ensure that research findings are put into action to achieve tangible benefits.

When to use Applied Research

Here are some specific situations when applied research may be appropriate:

• When there is a need to develop a new product : Applied research can be used to develop new products that meet the needs of consumers. For example, a company may conduct research to develop a new type of smartphone with improved features.
• When there is a need to improve an existing product : Applied research can also be used to improve existing products. For example, a company may conduct research to improve the battery life of an existing product.
• When there is a need to solve a practical problem: Applied research can be used to solve practical problems faced by individuals, organizations, or communities. For example, research may be conducted to find solutions to problems related to healthcare, transportation, or environmental issues.
• When there is a need to inform policy decisions: Applied research can be used to inform policy decisions by providing evidence-based insights into the effectiveness of specific interventions or programs.
• When there is a need to improve efficiency and effectiveness: Applied research can be used to improve the efficiency and effectiveness of processes or systems. For example, research may be conducted to identify ways to streamline manufacturing processes or to improve the delivery of healthcare services.

Characteristics of Applied Research

The following are some of the characteristics of applied research:

• Focus on solving real-world problems : Applied research focuses on addressing specific problems or needs in a practical setting, with the aim of developing solutions that can be implemented in the real world.
• Goal-oriented: A pplied research is goal-oriented, with a specific aim of solving a particular problem or meeting a specific need. The research is usually designed to achieve a specific outcome, such as developing a new product, improving an existing process, or solving a particular issue.
• Practical and relevant: Applied research is practical and relevant to the needs of the industry or field in which it is conducted. It aims to provide practical solutions that can be implemented to improve processes or solve problems.
• Collaborative : Applied research often involves collaboration between researchers and practitioners, such as engineers, scientists, and business professionals. Collaboration allows for the exchange of knowledge and expertise, which can lead to more effective solutions.
• Data-driven: Applied research is data-driven, relying on empirical evidence to support its findings and recommendations. Data collection and analysis are important components of applied research, as they help to identify patterns and trends that can inform decision-making.
• Results-oriented: Applied research is results-oriented, with an emphasis on achieving measurable outcomes. Research findings are often used to inform decisions about product development, process improvement, or policy changes.
• Time-bound : Applied research is often conducted within a specific timeframe, with deadlines for achieving specific outcomes. This helps to ensure that the research stays focused on its goals and that the results are timely and relevant to the needs of the industry or field.

Advantages of Applied Research

Some of the advantages of applied research are as follows:

• Practical solutions: Applied research is focused on developing practical solutions to real-world problems, making it highly relevant to the needs of the industry or field in which it is conducted. The solutions developed through applied research are often highly effective and can be implemented quickly to address specific issues.
• Improved processes: Applied research can help organizations to improve their processes, leading to increased efficiency and productivity. The research can identify areas for improvement, such as bottlenecks or inefficiencies, and provide recommendations for optimizing processes.
• Innovation: Applied research can lead to the development of new products, services, and technologies that can transform industries and create new opportunities for growth and innovation. The research can help organizations to identify unmet needs and develop new solutions to meet them.
• Collaboration : Applied research often involves collaboration between researchers and practitioners, leading to the exchange of knowledge and expertise. Collaboration can result in more effective solutions and can help to build partnerships between academia and industry.
• Increased competitiveness : Applied research can help organizations to stay competitive by enabling them to adapt to changing market conditions and customer needs. The research can provide insights into emerging trends and technologies, helping organizations to stay ahead of the curve.
• Economic growth: Applied research can contribute to economic growth by creating new industries and jobs. The research can lead to the development of new technologies and products that can drive economic growth and create new opportunities for entrepreneurship and innovation.

Limitations of Applied Research

Some of the limitations of applied research are as follows:

• Limited generalizability: Applied research often focuses on specific contexts and may not be generalizable to other settings. This means that the findings of applied research may not be applicable to other industries, regions, or populations.
• Time and resource constraints: Applied research is often conducted within a specific timeframe and with limited resources. This can limit the scope and depth of the research and may prevent researchers from exploring all possible avenues.
• Potential for bias: Applied research may be influenced by the interests and perspectives of the organization or industry funding the research. This can lead to a bias in the research and potentially compromise the objectivity and validity of the findings.
• Ethical considerations: Applied research may raise ethical concerns, particularly if it involves human subjects or sensitive issues. Researchers must adhere to ethical standards and ensure that the research is conducted in a responsible and respectful manner.
• Limited theoretical development: Applied research tends to focus on practical solutions and may not contribute significantly to theoretical development in a particular field. This can limit the broader impact of the research and may hinder the development of new theories and frameworks.
• Limited focus on long-term impact: Applied research often focuses on short-term outcomes, such as developing a new product or improving a process. This may limit the focus on long-term impacts, such as the sustainability of the solution or its broader implications for the industry or society.

About the author

Muhammad Hassan

Researcher, Academic Writer, Web developer

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Chris coxon and ryan franklin on educate texas, dr. gholdy muhammad on finding and nurturing joy in education, melissa byrne on connecting a learner profile to pathways and postsecondary workforce readiness, recent releases.

Health Science Pathways Guide

New Pathways Handbook: Getting Started with Pathways

Unfulfilled Promise: The Forty-Year Shift from Print to Digital and Why It Failed to Transform Learning

The Portrait Model: Building Coherence in School and System Redesign

Green Pathways: New Jobs Mean New Skills and New Pathways

Support & Guidance For All New Pathways Journeys

Unbundled: Designing Personalized Pathways for Every Learner

Credentialed Learning for All

AI in Education

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This campaign will serve as a road map to the new architecture for American schools. Pathways to citizenship, employment, economic mobility, and a purpose-driven life.

Web3 has the potential to rebuild the internet towards more equitable access and ownership of information, meaning dramatic improvements for learners.

Schools Worth Visiting

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About Getting Smart

Getting smart collective, impact update, 7 real-world issues that can allow students to tackle big challenges.

Ever since I started teaching in 1990, I have been a student voice advocate. Whether it was as a media/English teacher, student leadership advisor or a site leader. I have always believed that students not only have good ideas, but that they may just have new, unique or even better ones. In an effort to find their own voice and place in the world, they may see things that we don’t see or have long been paralyzed to do anything about. In 1999, I saw students address a school’s racial divide and cultural issues by creating a school-wide learning experience (see Harmony at Buchanan High School ). Ever since then, I have believed that projects with real-world outcomes hold some of the greatest potential for helping students become driven, empathetic and engaged citizens. The outpouring of student voice  in the wake of the recent tragedy in Parkland, Florida, is a great example.

When we begin the project design process in PBL, we can start either with a challenging problem or question and then tie it to our standards, or we can start with our standards and connect them to a real-world challenge. This second approach is more foundational to project based learning, for many reasons, including student engagement, student voice, relevance and authenticity. But beyond that, we also do it because this is where jobs are. Jobs are created and grown as we work to address the real problems facing our world and peoples. Our students are ready to tackle the problems facing our world. They have a voice. They have the tools and resources. And they are not afraid to collaborate and form new communities poised for the problem-solving work that needs to be done.

As an educator, parent and advocate for an engaged/empowered citizenry, I could not be prouder of how the students in Parkland, Florida – along with their peers across the nation – have both found their voice, as well as changed the narrative. These students, as well as many others across the nation, are not afraid to collaborate, and use new technologies and form new professional networks in order to address our current and future challenges. Let’s be honest, our best hope of improving the status of our planet’s many issues truly lie with our youth.

With all of this in mind, there are a number of current and ongoing real-world challenges that we currently face (and probably will for a long time). I don’t like the term “problem-solving” in this context, as it implies that we can fix, cure or eradicate a problem or challenge, but by going after our problems with new solutions, we can certainly move progress forward. And in that movement, there is magic. There is innovation. There is change. There is our collective human mission: how can we creatively collaborate, critically think and communicate in ways that make our world a better place to live.

New Pathways Handbook

Over the last few years, we’ve shared hundreds of stories about connecting students to work (and skills) that matters through our blog, podcast, and various publications. To synthesize these key learnings, we compiled the New Pathways Handbook, a great jumping-off point to our numerous resources and launchpad for getting started with pathways.

Our students are ready to exercise their collective voices and create calls to action. The following seven ideas are not ranked, but are rather my go to “top seven” that naturally lend themselves to projects that excite student interest, rely on available resources, and maintain relevance and authenticity. Moreover, they are not subject-specific. Indeed, there are many opportunities for English, science, social science, math and others to connect to these project challenges. They are:

1) Climate Change – Climate Change will have a significant impact on our students’ lives. Indeed, there may not be one issue that will impact them more comprehensively. Students have seen the data and witnessed the changes, and are listening to the science community. They know that this an urgent issue that will affect almost everything, including, but not limited to, weather, sea levels, food security, water quality, air quality, sustainability and much more. Many organizations – such as NASA , The National Park Service , National Center for Science Education , National Oceanic Atmospheric Association  and SOCAN  to name a few – are working to bring climate change curriculum and projects to teachers and students.

2) Health Care  – Since this has become a prominent topic in the national debate, students are becoming aware of the issues in our country related to rising costs, access, quality and equity. They are beginning to understand the importance both individually and societally. Like the aforementioned topic of climate change, students are also (and unfortunately) learning that we are not necessarily leading the world in this area. They know that this problem is connected to profits, insurance, bureaucracy and more, but they also have a fresher sense of how it could be different, and how we could learn from others around the world. The work on this topic, like many others, is being led by our universities. Institutions such as University of Michigan , Johns Hopkins  and Stanford are leading the way.

3) Food Insecurity   – as our students become more aware of their surrounding communities, as well as the peers they interact with daily, they begin to see differences. Differences in socioeconomic status, opportunities for growth, housing, security, support services and more. And since 13 million young people live in food-insecure homes, almost all of our students, as well as educators, know someone who is hungry on a daily basis. This may often start with service-based projects, but can also lead to high quality project based learning complete with research, data analysis, diverse solutions and ultimately a variety of calls to action. If you want to see how one teacher and his students transformed not only their school, but entire community related to food insecurity, check out Power Of A Plant author Stephen Ritz and the Green Bronx Machine .

4) Violence  – This is a natural given current events taking the nation by storm. However, the related topics and issues here are not new. And yes, they are politically charged, but young people care about these issues . They care about their collective safety and futures, but also know something can be done. In addition to the specifics related to school violence and safety, students can study details of how to advocate, organize, campaign and solicit support, learn that this is a complex problem that has many plausible causes, and, perhaps most importantly, hope for progress. They also know that although they are concerned about attending school in safe environments, our society and culture have violence-related problems and issues that they want to see addressed. Following the recent incident in Florida and the subsequent response from students, the New York Times has compiled a list of resources  for educators on this topic.

5) Homelessness  – We often hear the expression “think globally, act locally.” The topic of homelessness has garnered more attention than ever as more and more communities wrestle with a growing homeless population. In addition to opportunities for our students and schools to partner with local non-profit organizations dealing with homelessness, this topic, like others, is also a great way to elicit empathy in our students. We often hear from educators, employers and others that we want to raise adults that are able to solve problems, improve our communities, and have the ability to see beyond themselves. This topic can provide a number of options for helping students develop those skills. Finally, we also have a growing population of homeless students. So, the relevancy and urgency are all there. Many have laid the groundwork for us to address this within our curriculum. Organizations like Bridge Communities , National Coalition For The Homeless , Homeless Hub  and Learning To Give  are some of the many leading the way.

6) Sustainability  – This is an extremely global issue that affects everything from energy, to food, to resources, economics, health, wellness and more. Students are becoming more and more aware that our very future as a species depends on how we address sustainability challenges. They are aware that this challenge requires new ways of thinking, new priorities, new standards and new ways of doing things. Sustainability is all about future innovation. Students have tremendous opportunities to collaborate, think critically, communicate, and be creative when questioning if a current practice, method, resource or even industry is sustainable without dramatic change and shifts. Students who tackle these challenges will be our leaders – business, political and cultural – of the future. Educators and students can find almost infinite resources and partners. A few of these are Green Education Foundation , Green Schools Initiative , Strategic Energy Innovations , Facing the Future  and Teach For America .

7) Education  – It seems that each and every day, more and more of us (though maybe still not enough) are moving closer to realizing that our educational systems are seemingly unprepared to make the big shifts needed to truly address the learning needs of 21st-century students. The related challenges are many – new literacies, skills, economic demands, brain research, technology, outcomes and methodologies. It’s a good thing that more and more people – both inside and outside of education – are both demanding and implementing change. However, one of the continued ironies within education is that we (and I recognize that this is a generalization) rarely ask the primary customer (students) what they think their education should look, feel and sound like. We have traditionally underestimated their ability to articulate what they need and what would benefit them for their individual and collective futures. One of the many foundational advantages of project based learning is that we consult and consider the student in project design and implementation. Student “voice & choice” creates opportunities for students to have input on and make decisions regarding everything from the final product, to focus area within a topic or challenge, and even whom they may partner with from peers to professionals. It’s this choice that not only helps elicit engagement and ownership of learning, but offers opportunities for students to enhance all of the skills that we want in our ideal graduates. As one might guess, there is not a lot of formal curriculum being developed for teachers to lead students through the issue of education reform. This may need to be an organic thing that happens class by class and school by school. It can start as easily as one teacher asking students about what they want out of their education. Some other entry points are The Buck Institute for Education , Edutopia’s Five Ways To Give Your Students More Voice & Choice , Barbara Bray’s Rethinking Learning  and reDesign .

This is not intended to be an exhaustive or comprehensive list. However, these seven broad topics present hundreds of relevant challenges that our students can and should have opportunities to address. If they do, they will not only be more prepared for their futures, but also poised to positively impact all of our futures.

For more, see:

• High Quality PBL Case Study: School21
• In Broward County, Student Voice Impacts the Classroom and Beyond
• Introducing a Framework for High Quality Project Based Learning

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