An ad valorem tax is a tax that is stated as a percentage of the price of the good or service being sold. For example, if the tax rate is 10% and the good is sold for $100, the tax would be $10 (10% of $100). The tax amount varies based on the price of the good or service being sold.

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An Ad Valorem Tax

Question 7

Multiple Choice

An ad valorem tax:

A) is a fixed dollar amount that must be paid on each unit bought or sold.
B) is a tax that is stated as a percentage of the good's price.
C) is a tax that is stated as a percentage of the good's price, which increases as quantity bought increases.
D) is a tax that is only paid by producers.

Correct Answer: