QUESTIONS AND ANSWERS ECS1501 - Assessment 5.
Question 1 (12 marks) Maximum word count: 100 words
Giant, the world’s leading brand of high-quality bicycles and cycling gear, announced that their pre-tax
profit has decreased by almost 50% while their sales were down by approximately 16%. Watch the
following excerpt from The Wild Ones Podcast Ep.41produced by Cade Media (attached below) and
answer the following questions.
(i) Which of the presenters best describes the market condition that Giant Bicycles faces and
explain why you agree with him or her?
The presenter who describes the market condition faced by Giant Bicycles most accurately is the
one who clarifies that the issue is one of over-supply rather than under-demand. This explanation
is more precise because it correctly identifies the imbalance between supply and demand: Giant
Bicycles produced more inventory than the current market demand could absorb. Therefore, the
problem is excess supply, not a deficiency in consumer demand.
(ii) Draw a diagram of the bicycle market that illustrates the market conditions discussed in
the podcast.
, (iii) Explain the adjustment process to the new equilibrium position in the bicycle market.
As demand for bicycles decreases, the demand curve shifts leftward. This leads to an excess
supply at the initial price level, creating a downward pressure on prices. Manufacturers, like Giant,
respond by reducing production and possibly offering discounts to clear excess inventory. Over
time, the market reaches a new equilibrium with a lower price and quantity sold. This adjustment
process involves reducing the inventory to align with the reduced consumer demand, leading to
decreased revenue and profits until the market stabilizes.
Question 1 (12 marks) Maximum word count: 100 words
Giant, the world’s leading brand of high-quality bicycles and cycling gear, announced that their pre-tax
profit has decreased by almost 50% while their sales were down by approximately 16%. Watch the
following excerpt from The Wild Ones Podcast Ep.41produced by Cade Media (attached below) and
answer the following questions.
(i) Which of the presenters best describes the market condition that Giant Bicycles faces and
explain why you agree with him or her?
The presenter who describes the market condition faced by Giant Bicycles most accurately is the
one who clarifies that the issue is one of over-supply rather than under-demand. This explanation
is more precise because it correctly identifies the imbalance between supply and demand: Giant
Bicycles produced more inventory than the current market demand could absorb. Therefore, the
problem is excess supply, not a deficiency in consumer demand.
(ii) Draw a diagram of the bicycle market that illustrates the market conditions discussed in
the podcast.
, (iii) Explain the adjustment process to the new equilibrium position in the bicycle market.
As demand for bicycles decreases, the demand curve shifts leftward. This leads to an excess
supply at the initial price level, creating a downward pressure on prices. Manufacturers, like Giant,
respond by reducing production and possibly offering discounts to clear excess inventory. Over
time, the market reaches a new equilibrium with a lower price and quantity sold. This adjustment
process involves reducing the inventory to align with the reduced consumer demand, leading to
decreased revenue and profits until the market stabilizes.
