11.7 Ad valorem taxes Given an ad valorem tax rate of t, the gap between the price consumers pay and what suppliers receive is given by PD = (1 + t)PS.

a.

Show that for an ad valorem tax d In PD dt b.

= eS eS − eD and d In Ps dt

= eD es − eD

.

Show that the excess burden of a small tax is DW=−0.5 eDeS eS − eD t

2P0Q0.

17 c.

Compare these results with those derived in this chapter for a unit tax.