While the term of applied economics may be utilized in a slightly different manner according to different economic theories, it is possible to arrive at a working definition of applied economics that will work in most situations. Essentially, applied economics is employment of the basic assumptions of economics to real world situations, both isolated and interrelated with sets of current circumstances. Thus applied economics involves economists taking generally accepted theory and applying those theories to something that is happening in the here and now, with an eye to determining what can reasonably be expected to happen next.

Applying economic theories to current economic conditions can be extremely helpful for three key reasons. First, applying economics to the status of the economy of a company, a household, or a country as it stands today helps to sweep aside all attempts to dress up the situation so that it will appear to be worse or better than it actually is. From this perspective, applied economics is a powerful tool that enables the true and complete picture to emerge, so that it becomes possible to decide what to do and where to go from the current position.

Second, applied economics acts as a mechanism to determine what steps can reasonably be taken to improve the current economic situation. Each element that is relevant to the contemporary mode of operation of the entity, including the purchase and sale of goods and services, the usage of raw materials, and the division of labor within the entity come into play. Examining each aspect of the current economic condition will often yield sound ideas on how to maintain aspects that are working at a reasonable rate of efficiency, and strengthen areas where the performance is weak.

Last, applied economics can teach valuable lessons in how to avoid the recurrence of a negative situation, or at least minimize the impact. Because applied economics is all about the application of theory to real life situations, the process can aid in the development of understanding of why a condition took place. This includes also reviewing what steps were taken to improve or correct similar situations, and how those strategies may be employed to keep the economy flowing in a direction that will preclude a repeat of the situation.