The province wishes to improve our environment and accordingly will subsidise your municipality $ 2 for every $1 you spend on sewage facilities up to a maximum of $ 1920. Your income is $ 1,200. The price of sewage facilities (Y) is $ 12 and the price of non-sewage facilities (X) is $ 4. Carefully draw the new budget line labelling all points of interest.

Sewage facilities (Y)

At what point, are relative prices unaffected? Give the co-ordinates _____Y and ____X (i.e. at what point do you obtain the maximum grant)

How much better off are you with the conditional grant?

What is the amount of the conditional grant?

With an unconditional grant of the same dollar amount, how much better off would you be compared to the conditional grant?