Political economy is the study of how political institutions and processes affect economic policies and outcomes. It examines the interplay between politics and economics, revealing how power dynamics shape resource allocation and wealth distribution. Understanding political economy is important because it helps explain the motivations behind policy decisions, highlighting issues like inequality, market regulation, and international trade. By analyzing these interactions, scholars can propose solutions to economic challenges and predict the implications of policy changes on society. Ultimately, political economy offers insights into the complexities of governance and development.