2)

Question 2 (10 Total Marks) Conditional versus Unconditional Grant The Regional Government has a budget of $10,000. It spends its money on sewage treatment (X) and other goods (Y). Px=$200 Py=$100 Suppose the Provincial Government wants to encourage the Region to invest more in sewage treatment and offers the Region a matching grant. For every $1 the Region spends on sewage treatment, the Province will give it $1. The Region is initially in equilibrium at E. Yacher goods 100 95 90 85 80 75 70 65 60 55 50 45 40 13 35 30 25 20 15 10 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Xsewage cramment 1) If the Region were to take the conditional grant, what would be its utility improvement ? (1 mark)2] TWhat is the total expenditure required to purchase the new amount of sewage treatment? (1 mark) 3) How much of this required expenditure is from re conditional grant? [3 marks) 4] How much is from die Region's own budget? (1 mark] 5] If, instead of the conditional grant, me Province provided the region with an income transfer (i.e. an unconditional grant] equal to the amount of the conditional grant found in [3], would the Region continue to purchase me same amount of sewage trean'nent? If not, why not? (2 marks) 5) What is the amount of sewage treatment purchased under the unconditional grant? Why is the unconditional grant considered more efficient? (2 marks}