Question

1. If the demand for a service increases and the supply of the service remains constant is there any way for the cost of the service to be driven down?

2. 2. If this service / good is needed by an entire populous which in there any way for the total cost of the service / good to be less than when only certain segments of the population needed the service? To restate this simply with an example... Let us say that we enact a law which requires that every home in the United States needs an "emergency kit," for natural disasters or terrorism. When the Congressional Budget Office looks at the law it says that the overall cost of the law is going to represent 5% of the GNP. Voluntarily because of the climate in the world about 60% of the population goes out and buys the kit on their own and 40% does not for one reason or another. Will the overall cost of the "kits" be reduced or remain the same if the government then forces the 40% of the population to purchase the "kit" of face punitive taxes? Remember we are speaking about the total cost, not the cost per individual good.

3. Isn't the only true way to bring down the overall total cost of a good or service as it relates to another economic indicator to not purchase the good or service in the first place or change the indicator which you are measuring it against?

Answer 1

Ans) In a situation where the supply does not meet the increasing demand, the perfect way to tackle it in the long run is to innovate or try to figure out an alternative or a substitute to it. This way even if the supply of the services is constant, with the introduction of a substitute we can try to keep the costs of services down or in control.

If a law is brought into action that the total population is supposed to buy the kits, then in this case the manufacturing company will take into account that it is supposed to manufacture sufficient number of kits, and that there should not be any shortage, since the figure is definite. As it is compulsory for everyone to buy it and if not today but tomorrow they will have to only buy it. So the costs of kit can be controlled, now if the remaining 40% goes out to buy it, the costs can still be kept down because the remaining 60% have already bought it. And the remaining population is about to buy the remaining 40% of the kits.

Now if there is a shortage in the supply, and still if the government is willing to impose taxes on those who do not buy it, there is a high possibility that in such a scenario an increase in the costs of the kits may be experienced.

Not buying the service can reduce the costs, but if it is made compulsory to buy then either ways it will take a toll on the consumers spending or purchasing power even if we happen to change the measuring indicator.