Beer Economics- Supply and Demand

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Beer Economics ECO 202-002 The laws of Supply and Demand may be a simple concept except when it comes to beer. Two large beer companies have formed an Oligopoly and have taken the power from the people. Income high, or income low, beer will be purchased even if the price is not always right. A social gathering is not social without the presence of beer. Beer has been a growing industry year after year. The craft, or microbrewery industry, has grown tremendously since the early 1980s, and the Brewers’ Association reckons that there are now over 1,500 brewing companies in the country, a level not seen since Prohibition was introduced in 1919 (Krafoff, 1). Pabst Blue Ribbon, in 1890 the most popular beer in the U.S., has seen its market…show more content…
There is not an infinite supply of a given beer. This seems unimportant when no one wants said beer, but is important when it is in high demand. Ideally, the amount of beer will meet (or come close to meeting) the desire for it, meeting a market equilibrium. It may not taste like it, but our beer is actually in danger. The popularity of corn-based ethanol has already caused a tight market for malt, one of beer's three critical ingredients, as farmers increasingly forgo the barley crops used to make it in favor of more profitable corn (Boyer, 1). This has caused a worldwide shortage in hops, thus a large increase in price. Barley has risen from $157.06 USD per metric ton in March 2007 to $202.53 USD per metric ton. The other key ingredient in beer (along with water), hops is a flower that gives beer flavor and aroma (Boyer, 1). The shortage comes after a decade-long surplus discouraged farmers from planting the crop, which grows on trestles and can take years to mature (Boyer, 1). Since 1994, the amount of farm acreage planted in hops worldwide has declined by about half (Boyer, 1). Together, the two mean the beer industry now faces a 10 to 15 percent shortage (Boyer, 1). On the upside, water, aluminum and yeast are widely available and have stable prices. According to MolsonCoors financials, their total revenue (p x q) is $3,254,000. We can assume that they sell every beer at about $3 which would make their quantity sold at approximately 1,084,667 cans. That’s

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