Supply and demand in action in the food market

This article states:

"The trend is being fueled by an excess supply of dairy products, meat, grains and other staples and less demand for many of those same products from China and elsewhere due to the strong dollar. Lower energy costs for transportation and refrigeration also are contributing to sagging food prices, say economists."

1. What is excess supply and why does it lead to lower prices?
2. Does supply and demand analysis predict that less demand would lead to lower prices? What happens to quantity traded?
3. Does supply and demand analysis predict that lower energy costs would lead to lower prices? What happens to quantity traded?

Food Price Deflation Cheers Consumers, Hurts Farmers, Grocers and Restaurants

by: Heather Haddon and Julie Jargon
Aug 30, 2016
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: Consumers' glee at the supermarket checkout over lower food prices isn't shared by all: Farmers, grocers and restaurateurs are feeling the pinch of cheap milk, beef and corn prices on their incomes. Related article: U.S. farm incomes will hit their lowest point this year since 2009, the Agriculture Department forecast, deepening pain in the Farm Belt amid declining commodity prices.

CLASSROOM APPLICATION: Using supply and demand, students can evaluate the effect of a decrease in demand and decrease in (marginal) cost of food production on the equilibrium price of food. They can critically evaluate whether a decrease in demand and a decrease in marginal cost have opposite effects on food prices.

QUESTIONS: 
1. (Advanced) Does an increase in supply and a decrease in demand for a product each lead to a decrease in the product's equilibrium price?

2. (Advanced) What is the effect of lower energy costs for transportation and refrigeration on food prices? What is the effect of those lower costs on the profits earned by farmers?

3. (Introductory) Why are farmers exiting the food industry?

Reviewed By: James Dearden, Lehigh University