Cost of living differs between states and other geographical boundaries due to price differences in housing, groceries, health care, transportation and utilities. These factors may be different in separate states due to differences in social policies, tax rates and inflation levels.
Cost of living in a state is affected by any factor that changes the price of necessary goods and services. For example, if a state has few food producers, the transactional costs for grocery stores to stock their shelves increase and so does the price of groceries. If a state's income tax rate is higher than other states, the purchasing power of $1 in that state is less than other states. Comparatively, this raises the cost of living.
Other factors that may raise the cost of living are state population density and availability of natural resources. California is a highly populous state with dense cities and a relative scarcity of resources such as water and fuel. The high price of these resources contributes to a state-wide cost of living that, as of 2015, is higher than the national average and reaches 200 percent of the national average in dense urban areas such as San Francisco.
Subsidies for specific services also change cost of living on the state level. If a state is more apt to provide health care for its citizens at lower costs, the cost to the citizens for health care is lower, which in turn lowers their cost of living.