How Much We Care About Gasoline Prices

New Jersey is the only state where it’s illegal everywhere to pump your own gasoline. Polls indicate that we like our full service gasoline stations. You just pull in to get gas and the attendant walks over to do it for you. He (usually a he) might even wipe your windshield. And, the service appears not to have increased what we pay.

Instead, the price of gasoline depends on four variables:

Gasoline Prices

The difference between a gallon of regular gasoline in California and in Texas can be more than $2.00. You can see that there is a vast split between the high and low gas states in the U.S.:

And the gap has been increasing:

This is also a big difference in gas taxes:

For three of the four variables that affect the cost of gasoline, California has the highest prices. The reasons range from a state tax that is the highest in the country to the state’s environmental mandates. We could also add that California has less access to the energy infrastructure of pipelines and refineries than states like Texas.

Our Bottom Line: Elasticity

When an economist looks at gasoline prices, she will probably ask about our elasticity. She will wonder how much the quantity we are willing and able to buy “stretches” or “shrinks” when price changes. If price changes a lot and the quantity we buy remains almost the same, as with medication, then our demand is inelastic. By contrast, if price swings have a big impact on buying, then our response is elastic.

With gasoline, knowing our elasticity is crucial for predicting the impact of taxes, of mass transit, of fuel efficiencies. And yet, researchers do not seem to be quite sure. Two recent papers suggest that our price elasticity of demand for gasoline is more than we previously thought. The BLS though suggests it is not.

We can say though that we need some answers.

My sources and more: WSJ recently had an article that reminded me it was time to compare gasoline prices around the U.S. Next, for more, Marketplace had some facts from last year that led me to this up-to-date data, here and here. Then, for an academic lens the BLS, this paper and this one looked at elasticity. And finally, the NY Times explained New Jersey’s loyalty to full service gasoline stations.