6.2 On July 1, 1965, the federal ad valorem taxes on many goods and services were eliminated. Comparing prices before and after this change, we can determine how much the price fell in response to the tax’s elimination.

Given an ad valorem tax of v, the tax collected on a good that sold for p was vp. If the price fell by vp when the tax was eliminated, consumers must have been bearing the full incidence of the tax. Consequently, consumers got the full benefit of removing the tax from those goods. The entire amount of the tax cut was passed on to consumers for all commodities and services that were studied for which the taxes were collected at the retail level (except admissions and club dues) and for most commodities for which excise taxes were imposed at the manufacturer level, including face powder, sterling silverware, wristwatches, and handbags (Brownlee and Perry, 1967). List the conditions (in terms of the elasticities or shapes of supply or demand curves) that are consistent with 100% pass-through of the taxes.

Use graphs to illustrate your answer.