How do individuals decide that what to consume or produce? How they decide that this choice is optimal?

Answer 1

They consume until they are satisfied or until they run out of money.

Answer 2

Law of supply and demand says the optimal quantity to produce for suppliers and to consume for individuals is where supply and demand intersect. Some people will be willing to pay more, and benefit (consumer surplus) and some producers are willing to sell for less (producer surplus) but the intersection of Supply and Demand is the equilibrium or optimal quantity. Individuals also have perpensity to save, which will affect consumption habits, but at the basic level this should not really be considered. Consumers also have marginal utility curves and producers isoquants. Google or wikipedia some of the words used above if you need further direction.

Answer 3

this could be a organic microeconomics question. first of all, you ought to assume that each and each guy or woman is a application maximizer and a rational decision maker. this could be a variety individual and it particularly is noted as "Homo Economicus". then you definitely assume that each and each given guy or woman has a indifference map, that's a map of indifference curves. those indifference curves coach diverse bundles of things, each and each measured as to quantity, to which a client is detached. that's, at each and each element on the curve, the buyer has no selection for one equipment deal over yet another. those curves are in the 1st quadrant, downward sloping, convex, and one curve can not bypass the different. the different factor you ought to know is the cost variety constraint. it is in certainty a conventional-degree equation the place x and y are 2 products, px and py are the charges of those products, and w is your wealth. while optimizing your selection, you elect a element the place W = x*Px + y*Py. Your optimal component to intake is hence while the cost variety constraint is tangent on your corresponding indifference curve. that's, the slope of the cost variety constraint must be equivalent to the slope of the indifference curve. i.e., the ratio of marginal application of good x (the applying you get from one greater unit of x) to marginal application of good y must be equivalent to the cost ratio of those products.