Want to Live Cheaply? Head to Texas

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Differences in prices for goods can also result from costs along the supply chain. Prices of retail goods generally include the retailer's cost of goods (the amount paid for the product plus shipping), operating expenses (overhead, payroll, marketing, and supplies), plus any additional markup. For example, supermarkets set milk prices based on competitive wholesale pricing between processors, in-store promotions, and a margin for supermarkets' operating expense and profit, according to the Northeast Organic Dairy Producers Alliance.

Which entity represents the greatest share of cost can vary by market. Operating expenses might be higher in places where labor and rent cost more, for instance. On average, farmers receive 45.9 percent of the retail price of a gallon of 2 percent milk, cooperatives 6.1 percent, wholesale processors 35.6 percent, and retailers 12.5 percent, according to a U.S. Government Accountability Office (GAO) report, citing 2000 to 2004 data. These percentages differ regionally: In Seattle, where a gallon cost an average $2.70 in that period, retailers received 44.1 percent, compared with 4.8 percent in Charlotte, N.C., where it cost $2.66.

Marketing strategies among regional retailers also play a role. For example, a retailer promoting a low-cost image might sell milk at or near cost and raise the price of other items. Those increasing profitability of dairy products might maintain high prices for milk but set lower prices for other items, according to GAO.

Transportation Costs

Labor and energy costs are also significant factors. "Alaska and Hawaii are expensive because it's expensive to ship things there," says Wial. Even gasoline prices are affected by transportation costs. The U.S. Gulf Coast is the starting point for most major gasoline pipelines, according to the U.S.Energy Information Administration, and states farther from refineries tend to have higher prices.As of June 13, the price of a gallon of gas in nearby Houston was $3.528, compared with $4.114 in Chicago, according to EIA data.

Bill Martin, chief executive of the Harlingen Economic Development Corp., says gas prices in Texas tend to be about 10¢ lower than the U.S. average, due in part to the proximity to refineries. With a lower price for fuel, Harlingen residents' transportation costs are about 12 percent lower than the national rate, C2ER estimates.

State programs can have an effect too. California gas prices, for instance, are usually high, as drivers must use costlier reformulated gasoline, which burns cleaner. Also, if more than one refinery in the state has operating problems at the same time, supply tightens and prices can soar, or supplies must be transported from the Gulf Coast, according to the EIA.

State Taxes

In a gallon of gas, the price of crude oil is the largest price contributor, representing about 68 percent of the retail price, while taxes represent the second-largest chunk, about 14 percent, according to the American Petroleum Institute, a trade association.

Wide gaps between state taxes on gas contribute to price differences among markets. The federal excise tax on gasoline is 18.4¢ per gallon. Including federal, state and local taxes, the West region has the highest average tax on gasoline, at 61.3¢ per gallon, while the South has the lowest, an average 38.5¢, according to API's May 2011 data. Among states, Alaska has the lowest average gas tax, 26.4¢ per gallon, and Connecticut has the highest, 70.3¢. Texas, at 38.4¢ per gallon, ranks 12th lowest.

Cigarettes are sensitive to state excise taxes. The rate per pack ranges from 17¢ in Missouri to $4.35 in New York, according to 2011 data from the Federation of Tax Administrators. As a result, cigarettes in Missouri cost about $3.97 per pack but $8.97 in New York, according to the Campaign for Tobacco-Free Kids.

With access to cheaper goods from milk to gas, middle-income earners in places with low costs can achieve a higher standard of living for less. The low cost of housing, transportation, and other basic expenses can be a significant advantage, but the cost of living is only one lifestyle consideration. Says Frutiger: "Quality of life is a judgment call."

Click here to see the 25 cheapest cities in the U.S.

Wong is a lifestyle and real estate reporter for Bloomberg Businessweek.