Question: Problem 2. Addictive goods. In this exercise, we generalize Cobb-Douglas preferences to incorporate the concept of a reference point. We can use such preferences to

to incorporate the concept of a reference point. We can use such

preferences to model the consumption of addictive goods. Consider the following utility

function: u(1, 2; C) = (x1 - c)x2 with a + 3

Problem 2. Addictive goods. In this exercise, we generalize Cobb-Douglas preferences to incorporate the concept of a reference point. We can use such preferences to model the consumption of addictive goods. Consider the following utility function: u(1, 2; C) = (x1 - c)x2 with a + 3 = 1, 0 0. Notice that the function is only defined for x1 2 c and x2 2 0; assume that for x1

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1. To take in the necessary information,

7. Find four examples that illustrate the statement: Beyond a certain point, open-ness regarding information and communication can become detrimental to relationships.

2. In this chapter, the reader should reflect on the following concepts: