The effect of alloying Pd with Ag on the hydrogenation of acetylene is examined by analyzing the chemisorption of all potential Ci (atomic carbon, CH, methylene, and methyl) and C 2 (acetylene, vinyl, ethylene, ethyl, ethane, ethylidene, ethylidyne, and vinylidene) surface intermediates and atomic hydrogen along with the reaction energies for the elementary steps that produce these intermediates over Pd(111), Pd 75%Ag 25%/Pd(111), Pd 50%Ag 50%/Pd(111), and Ag(111) surfaces by using first-principle density functional theoretical (DFT) calculations. All of the calculations reported herein were performed at 25% surface coverage. The adsorption energies for all of the C 1 and C 2 intermediates decreased upon increasing the composition of Ag in the surface. Both geometric as well as electronic factors are responsible for the decreased adsorption strength. The modes of adsorption as well as the strengths of adsorption over the alloy surfaces in a number of cases were characteristically different than those found over pure Pd (111) and Ag (111). Adsorbates tend to minimize their interaction with the Ag atoms in the alloy surface. An electronic analysis of these surfaces shows that there is, in general, a shift in the occupied d-band states away from the Fermi level when Pd is alloyed with Ag. The s and p states also appear to contribute and may be responsible for small deviations from the HammerNørskov model. The effect of alloying is more pronounced on the calculated reaction energies for different possible surface elementary reactions. Alloying Pd with Ag reduces the exothermicity (increases endothermicity) for bond-breaking reactions. This is consistent with experimental results that show a decrease in the decomposition products in moving from pure Pd to Pd-Ag alloys. 2-5 In addition, alloying increases the exothermicity of bond-forming reactions. Alloying therefore not only helps to suppress the unfavorable decomposition (bond-breaking) reaction rates but also helps to enhance the favorable hydrogenation (bond-forming) reaction rates.