6. [15 points) The state of California is considering funding local protection for forest wildfires. Forests are a valuable resource and protecting them could be considered a public good. The state has two alternative methods of funding: lump-sum grants and matching grants. In the case of matching grants, the state of California will spend $1 for each $1 spent by local governments on forest protection from wildfires. In the case of lump-sum grants, the state will just give fixed dollar amounts to different localities. (a) What is the price of additional dollar of local spending in each type of grants? (5 points) (b) If the dollar value of both types of grants to a locality is same, which type of grant will lead to higher levels of spending on forest protection? Explain using the concept of income and substitution effects (5 points) (c) The national government recognizes the importance of saving forests from wildfires and announces a matching grant with a matching rate of 0.8. As a result, a local government now receives two matching grants, one from state (R = 1) and one from federal government (R=0.8). What is the price of additional dollar of local spending with these two grants? 15 points) 6. [15 points) The state of California is considering funding local protection for forest wildfires. Forests are a valuable resource and protecting them could be considered a public good. The state has two alternative methods of funding: lump-sum grants and matching grants. In the case of matching grants, the state of California will spend $1 for each $1 spent by local governments on forest protection from wildfires. In the case of lump-sum grants, the state will just give fixed dollar amounts to different localities. (a) What is the price of additional dollar of local spending in each type of grants? (5 points) (b) If the dollar value of both types of grants to a locality is same, which type of grant will lead to higher levels of spending on forest protection? Explain using the concept of income and substitution effects (5 points) (c) The national government recognizes the importance of saving forests from wildfires and announces a matching grant with a matching rate of 0.8. As a result, a local government now receives two matching grants, one from state (R = 1) and one from federal government (R=0.8). What is the price of additional dollar of local spending with these two grants? 15 points)