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Question 1 (12
marks)
Maximum word count: 100 words
(i) Which of the presenters best describes the market condition that Giant Bicycles
faces and explain why you agree with him or her?
Basically all of them are saying same thing, and they both describe what Giant cycles is
going through. When there is shortage of demand there is reciprocally excessive supply at
the ongoing price. It however depends on what is being held constant.
(ii) Draw a diagram of the bicycle market that illustrates the market conditions
discussed in the podcast.
To illustrate the situation, two graphs can be used. One holding supply constant and demand
used decrease used to explain the situation. Alternatively, demand can be held constant and
supply increasing.
Option 1: Decrease in demand Option 2: Excess supply
(iii) Explain the adjustment process to the new equilibrium position in the bicycle market.
The two diagrams suggest that excess supply or shortage of demand arises because
the price is perceived too high. As such, the price must fall. As price falls, new
equilibrium will be established at lower supply to reduce over supply. Thus, keeping
demand constant, supplier must cut on their supply to the original level keeping price
but reducing quantity. Alternatively, the price must be reduced so that inventory is
2
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