Question

When people decide to spend money, how do economists say they decide upon which of the thousands of choices they may have, to spend it?

Answer 1

In economics, it is assumed that people are rational. Due to limited resources and unlimited wants, people make choices. How people choose to spend money depends on their opportunity cost and the utility people derive by spending that part of their income on particular goods or services. The amount of utility one derives from one good or service may be different from someone else's utility from that good or service. So it depends on individual utility and opportunity cost.