Artha Vijnana: Journal of The Gokhale Institute of Politics and Economics

H. D. Vinod

Abstract

Hotelling's famous theorem demonstrated that any excise tax which replaced an income tax yielding the same revenue placed the individual in a less preferred position and that a price above the marginal cost is similar to excise tax hence marginal cost pricing is better under his assumptions. In this paper an attempt is made to give a rather different graphical proof of the same theorem than the usual graphs. The advantage of our proof is that it avoids the confusion that may arise from a neglect of the vital distinction between the "total" and the "marginal conditions for a social optimum.

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