Sunday, January 15, 2012

Nice chart showing gas taxes in various "rich" countries and an excellent graph showing the effect of these taxes on the quantity demanded for gasoline. Bet you can guess what the answer is.

One of the primary reasons for the differences in the retail price of gasoline in the "rich world" is the differences in the gas/fuel tax levied on each gallon of gasoline.

This first graph shows, in US dollars, the amount of tax various countries levy on gasoline and diesel fuels.  Quite a difference!
Source: Econbrowser
Here is a chart from a different source showing the pre and post tax price of gas and diesel in the coutries listed above and some others.  The blue line is pre-tax. You can see the price of fuel is basically the same in all areas

Source: HERE

The post-tax retail price of gasoline is going to be higher when the above taxes are added to the pre-tax price of gasoline, to state the obvious.

The Law of Demand in economics states that the price and quantity demanded of a good are INVERSELY related---price increases the quantity demanded decreases---price decreases the quantity demanded increases.  Makes sense, right?

The next graph illustrates this point explicitly.  Note the price on this graph is along the horizontal axis and the quantity demanded of fuel is on the vertical. This is the OPPOSITE of what is traditionally done in economics textbooks.  The inverse relationship between price and quantity demanded holds up rather well.

Source: Econbrowser

What are the implications?  If you want to seriously decrease the consumption of carbon-based fuels, the most effective way is through an increase in gas prices at the retail level.  Is this politically possible? Absolutely not.

To read more about this important topic go HERE for the source for this posting and/or go HERE for the original research paper that has more in detail. Worth a look if you are at all interested.
View My Stats