Assume that Cherry County has an initial budget line and indifference curves for the public good miles of highway and a composite good representing all other private goods.
a. Indicate graphically what will happen to demand for the two types of goods if the county receives an open-ended matching grant from the state for highways.
b. Indicate what will happen to demand for the two types of goods if the county receives an unrestricted non-matching grant from the state for highways where the size of the grant is such that the budget line goes through the optimal allocation based on the open-ended matching grant in part a.
c. Compare the likely outcomes in parts a and b. Is Cherry County better off with one or the other type of grant program? If so, explain.