1. Use the demand/supply model to explain why attachment 5 suggests that food prices have decreased following the decrease in the price of oil.

Attachment 5

Oily food

The Economist; October 10 2015, p.68

The prices of staple crops, like those of other commodities, are falling fast. In August they reached their lowest level for eight years, down by over 41% from their peak in 2011. This is not because people are eating less, or because farmers have become much more productive. Not is it because of a slowdown in Chinese growth, in contrast to many other commodities. Whether going up or down, food prices are largely driven by other factors, among them oil prices and government policy.

Oil first. Cheap fuel means cheaper food. Natural gas, whose price is tied to that of oil, is used for producing fertiliser. . . Cheap oil also means less demand for biofuels, which in turn means cheaper food because of reduced appetite for grains used in biofuels.