This week's 'Ask Evan question comes from Rob S from York County. Rob asks, "Why do gas prices end with .9 per gallon?"
Here's what I found. The practice of pricing fuel with a fraction of a penny is thought to have started around the 1930's. Congress first implemented a $0.01 gas tax in 1932 as a temporary measure, putting that money towards reducing deficits connected to the great depression. The tax was supposed to expire in 1934, but Congress voted to extend the tax and raise it by half a cent instead.
The tax now sat at $0.015 per gallon of gas. At the same time gas station owners began breaking down the price of a gallon of gas by fractions of a cent, leading to the generally accepted theory that it was the fraction of a cent tax that resulted in gas station owners universally beginning to price their gas this way.
When this practice began, gas cost around $.10 per gallon, so the change of the price by even a fraction of a cent was significant in terms of getting people to come to your fuel station.
Today, federal gas taxes continue to add up to fractions of a penny. For example, in 2014- federal gas tax was $0.184 per gallon.. While the average state gas tax was $0.241 per gallon.
So why don't station owners simply round-up or down on the price of a gallon these days? As for rounding down-- that 9/10th of a penny per gallon does add up to quite a bit in the grand scheme of things-- especially since station owners make very little profit from fuel itself.
As to why they don`t round up? The answer lies in marketing. Pricing gas by the 9/10ths of a cent works a lot like when other stores sell items for prices ending with $.99. A price of $2.89.9 gives the individual the impression that they are only paying $2.89 per gallon when they are essentially paying $2.90- two insignificantly different prices that nonetheless make a difference when a customer is picking a gas station to patronize.
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