Economics, according to Harvard economist Greg Mankiw, is the study of how societies allocate limited resources. Because resources-- time, money, land, factory equipment and others--are not infinite, but exist only in finite amounts, individuals, households and entire societies must set priorities and determine how they will deploy the resources at their disposal to achieve their needs and wants, including food, shelter and others. Applied economics takes basic economic principles, such as the allocation of scarce resources, and removes the abstraction from economic theory, allowing it to be applied to almost any area of life.
Applied economics, by reducing the abstract level of economic theory, makes economic knowledge more accessible and understandable. This, in turn, increases the use of economic analysis and reasoning as powerful tools in decision-making by large and small businesses, banking and investment firms, government agencies, nonprofit organizations and others.
Economics affects most areas of life and economic analysis has broadened in scope. The applied economics program at Johns Hopkins University in Baltimore, Maryland, reports on its website that the ability to analyze economic data and use the results to make decisions in a broad range of areas is no longer confined to Ph.D. economists in academia and government. Economic analysis now applies to business, health care, law, the environment, government policy and agriculture. A degree program in applied economics often enables students to specialize in one of these areas.
Agricultural and applied economics are somewhat related, but not identical. Many universities, including Texas Tech University, the University of Wyoming, Virginia Tech, the University of Wisconsin at Madison and the University of Georgia, often refer to their applied economics programs as agricultural and applied economics or a similar name. In addition, a national association for applied economics is known as the Agricultural and Applied Economics Association (see Resources 1). Although many students of applied economics study economics and its application to agricultural production, land use and natural resource conservation, applied economics as a discipline is not limited to these areas.
Statistical and quantitative analysis is emphasized in applied economics. Mastery of these methods enable a practitioner of applied economics to conduct rigorous analyses of a wide range of public and private sector problems. Many articles published by peer-reviewed journals in applied economics, such as the journal Applied Economics (see Resources 2) use quantitative techniques to analyze and explain various issues in business, agriculture and public policy.