To encourage communities to reduce emissions, Representative Pressley would like to propose that the federal government provide federal aid to cities to convert busses from gas to electric. There are two ideas circulating in her office.

Proposal A - tied grants: This proposal would give each community a block grant of $250,000. The money could only be spent on converting busses from gas to electric.

Proposal B - matching grants: This proposal would subsidize spending on bus conversion. For each dollar spent by local communities, the federal government would provide $0.50 of aid.

(a) Suppose that a typical city has a budget of $1,500,000 for upgrading busses and other spending. Draw a budget constraint for such a community showing their current choices (pre-policy) with spending on converting busses on the x-axis.

(b) Add a second budget constraint depicting the community's options under proposal A. Be sure to clearly label all endpoints of each budget constraint.

(c) Add a third budget constraint depicting the community's options under proposal B. Once again, please clearly label all endpoints.

(d) The budget constraints from Proposal A and B intersect at $750,000 (you don't need to solve for this). What communities would benefit more from Proposal A than Proposal B? What communities would benefit more from Proposal B?