🛠️ Applied Economics
What is Applied Economics?
Applied economics is where theory meets the real world. It’s about using economic models and concepts to analyse current problems, shape policy, and guide business decisions. From minimum wage debates to congestion charges, applied economics helps us understand what actually works in practice—and why.
For A-level students, this is where economics becomes truly relevant. It pushes you to connect diagrams and definitions to what’s happening in the news, politics, and everyday life. In this section, you'll explore topics that matter now—backed by data, case studies, and real-world context
Minimum Wage
Help or Harm?
Minimum wage is the lowest legal hourly pay that employers can offer workers. It's designed to protect employees from exploitation and ensure a basic standard of living.
🧠 Key idea: Minimum wage policy is a balancing act. Students should ask: does the benefit to workers outweigh the potential cost to businesses and jobs?
Raising the minimum wage sounds simple—give people more money, reduce poverty. But economists have long debated the impact. Some argue higher wages improve living standards and boost productivity. Others warn it could lead to job losses, especially in small businesses or sectors with thin profit margins.
In the UK, the National Living Wage has gradually increased, now covering workers over 21. Meanwhile, places like California and New Zealand have introduced sharp rises.
So, what’s happened?
Studies show mixed results. In some sectors, employment has stayed steady, even as wages rise. In others—like hospitality—firms may cut hours, hire fewer staff, or raise prices. It depends on the economic context.
Can Economics Fix Traffic?
🚗 The Case of Congestion Charges
Congestion charging is a practical example of how economists apply market-based solutions to real-world problems. The idea is simple: when a resource is overused — like roads in a busy city — you make people pay to use it, just like any other scarce good.
🔧 How It Works
A congestion charge is a fee that drivers must pay to enter certain areas, usually in city centres during peak hours. The goal isn’t to ban cars, but to reduce demand at the most crowded times.
By introducing a price:
- Some drivers choose public transport or carpool instead.
- Others shift their journey to off-peak hours.
- Overall congestion drops, making roads more efficient for those who do need to use them.
Real-World Example: London
London introduced its congestion charge in 2003. Drivers pay a daily fee (currently £15) to drive in the central zone between 7am and 6pm on weekdays. The results were significant:Traffic volume fell by 15–20% in the first year.Bus speeds improved.CO₂ emissions dropped by 15%.Revenue was reinvested into public transport.But over time, the effect weakened slightly as the number of delivery vans, taxis, and ride-hailing vehicles increased — many of which were initially exempt from the charge.
🏘️ Why Are House Prices So High?
For many young people, owning a home feels like an impossible dream. In the UK, house prices have risen much faster than wages, especially in London and the South East.
So what’s going on?
Economists point to a classic supply and demand problem. There aren’t enough homes being built, especially in places people want to live. Planning laws are strict, and land is expensive. At the same time, demand has surged due to population growth, investment in property, and low interest rates (until recently).
Governments have tried Help to Buy schemes, tax breaks, and social housing projects—but prices keep climbing.
💡 Think about it: Should the government build more homes, relax planning rules, or try to control prices directly? And how do interest rates affect housing markets?
