3. You have $400 to spend on prescription drugs and all other commodities. Let X denote the quantity of prescription drugs, P the cost for each unit of prescription drug, and Xo be the expenditure on all other commodities. (10 marks) Page 1 of 2 (a) If cost of prescription drug is $25 per unit draw the budget line. Your calculations should indicate the numerical values for the vertical and horizontal intercepts. (Hint: Xo is expenditure on all other goods i.e. measured in $'s. Plot Xo on the vertical axis). (4 marks) (b) You now decide to sign up for a drug plan that states you have to pay the full cost of prescription for the first $200 of prescription drugs and that you will receive a subsidy of 80% for amounts greater than $200. Assuming Pi is still $25 draw the new budget line. What is the slope of the new budget line? How has the budget set changed from (a) above? (Your calculations should indicate the numerical values for the vertical and horizontal intercepts). (6 marks)