Assume Ronald's preferences between healthy vegetables and unhealthy hamburgers can be represented by a family of indifference curves and that the price of vegetables is twice that of hamburgers.
a) Assuming both hamburgers and vegetables are normal goods for Ronald and with the aid of a diagram, explain how Ronald determines his optimal consumption bundle of vegetables and hamburgers. You do not need to include numbers on your diagram. For convenience in later parts of the question, place hamburgers on the horizontal axis.
The government is aware of an increasing obesity problem in the community and is analysing how best to design policies to address the problem. One policy option is that the government introduces an educational program aimed at informing the community of the unhealthy impact of hamburgers.
b) Assuming the educational campaign has a degree of success, explain and illustrate with a diagram how it is likely to impact Ronald's optimal bundle of hamburgers and vegetables. Alternatively, the government could introduce a tax on the consumption of hamburgers.