Cross-elasticity in everyday life

What if your tax rate was lower?
Well, I would probably get more post-tax income.

For every dollar less of taxes, would you get one dollar of additional post-tax income?
No, because I might get a lower salary.

What if the government dictated that rent in my area was not to increase more than 1% a year?
My rent would probably be cheaper than rent in other areas.

Isn’t that great?
Well, not if the house falls into disrepair because the landlord find it not worthwhile to maintain the property after a few years.

What if the government raised taxes on companies?
Companies will pay more taxes.

Isn’t this a good thing?
Well, things might get pricier too, as those new costs are passed on.

Cross-elasticity is a very broad phenomena. Any profit-generating activity that involves multiple inputs and outputs has many ways of adjusting those inputs and outputs to maximize value (be it profit or consumption), and when prices are changed for one input or output it will affect the demand / supply of the other inputs and outputs in some way that can be difficult to anticipate.

To assume that the only change would be in the adjusted input / output is naive.

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