1. A student makes the following statement: "If the federal government raises the sales tax on gasoline by $0.25, then the price of gasoline will rise by $0.25. Consumers can't get by without gasoline, so they have to pay the whole amount of any increase in the sales tax." Under what circumstances will the student's statement be true? Illustrate your answer with a graph of the market for gasoline.

6. Loblaw has more than 1000 stores from coast to coast, more than 140,000 employees, and total revenues of close to $30 billion. Oenny and David Chapman run the family-owned Chapman's Ice Cream in Markdale, Ontario, which employs local people and supplies Loblaw with icecream.

a. How does Loblaw coordinate its activities? Is it likely to use mainly a command system

or also to use incentive systems? Explain.

b. How do you think Penny and David Chapman coordinate the activities of Chapman's Ice Cream? Are they likely to use mainly a command system or also to use incentive systems? Explain.

c. Describe, compare, and contrast the principal-agent problems faced by Loblaw and Chapman's Ice Cream. How might these firms cope with their principal-agent problems?