For each of the 16 cases indicated in the table below state whether you would use the demand curve or the supply curve to determine the appropriate price for valuation purposes in an Efficiency Analysis, and state whether the appropriate price is gross or net of the tax or subsidy. In each case briefly justify your answer.

Item to be valued Indirect tax Subsidy Distorting Corrective Distorting Corrective Project Output

– Satisfies additional demand (i) (ii) (iii) (iv)

– Satisfies existing demand from alternative source

(v) (vi) (vii) (viii)

Project Input

– From additional supply (ix) (x) (xi) (xii)

– Diverted from alternative use (xiii) (xiv) (xv) (xvi)

Hint: Use Figure 5.13 to work out the answers in the distorting tax and subsidy cases.

Then amend Figure 5.13 as discussed in the Section 5.7 on Corrective Taxation and apply the amended version to the corrective tax and subsidy cases.