In economics 101 we learn about the impact that taxes and subsidies have on supply and demand. The usual example that is given is a situation where the sales tax for widget A is increased. As a result the demand curve shifts left resulting in a new before tax price and quantity demanded of widget A. We then see that when you add in the sales tax, the price of widget A increases(P1 to P2) relative to when there was not tax(see below).
Despite being told that this impacts us in our everyday lives, the concept of taxes having a real impact on prices is still abstract for some.
To make this concept a little more concrete lets look at the differences in gas prices between US States. Here is a list of the taxes that individual states charge on every gallon of gasoline as of January of 2012. Here is a link showing the lowest to the highest average daily gas price by state.
When you compare these two sets of data you see that the states with higher gas taxes tend to also have higher overall gas prices. Just drive from Williamsport Pennslyvania(has 15th highest gas tax in US) to Rochester New York(has the highest gas tax in US). Rochester on 3/24/12 had an average price of 3.978 per gallon while Williamsport had on average price of 3.900, a difference of 9.78 cents. The state averages differ by 15.7 cents. The state gas taxes differ by 16.7 cents.
Part of this difference is a direct result of this tax difference. When you look at the 25 states with the highest gas prices 21 of them also part of the 25 highest gas taxing states(Do remember that there are MANY other factors(supply and demand factors) at work here and that this is not a scientific comparison, just food for thought).
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