1. Because nonresidents benefit from local government public-safety services, suppose that the federal government offers Central City a matching, categorical grant equal to $1 for $1 of local tax money spent on public safety. Assume the total expenditures on public safety and total tax before the grant were $100,000. (6 points)

a. What is the effect on this grant on the price of spending for public safety to these localities? (Show your calculations.)

b. How might the grant correct for the spillover problem.

c. Instead of the matching grant, suppose Central City received a lump-sum grant of $55,000 that must be spent on public safety. If the total income of Central City residents is $22 million and the income elasticity of demand for public safety is 0.8, what is the expected effect of this grant on spending and taxes for public safety? (Show your calculations.)