The Buzzy New Drinking Trend: Alcohol-Free Booze

EconEye Admin

4 years ago

The non-alcoholic trend picked up a year or two before the pandemic. Alcohol companies including Heineken, AB InBev, and Molson Coors have started offering more zero alcohol options. Smaller brands, such as Athletic Brewing and Seedlip have also arrived on the scene.—CNN Business

Answer the following questions to check your understanding of the story.

Describe the non-alcoholic beverage market before the entry of Athletic Brewing and Seedlip.

Prior to the entry of Athletic Brewing and Seedlip, each existing firm _____________.

a) decreases investment and slows economic growth

b) produced the quantity of beverages that maximized markup and made an economic profit

c) had zero excess capacity and could not satisfy market demand

d) produced the quantity of beverages that minimized average total cost and maximized economic profit

What quantity does a firm produce to maximize its economic profit? What is the incentive for a new firm to enter a market?

All firms maximize profit by producing the quantity at which marginal revenue equals marginal cost. Because the firms in the non-alcoholic beverage market were making an economic profit, Athletic Brewing and Seedlip entered the market to share that profit.

Why might the market for non-alcoholic beverages be considered efficient?

The market for non-alcoholic beverages might be considered efficient if _______________.

a) the loss arising from producing an inefficient quantity is offset by the gain from product variety

b) the sum of consumer surplus and producer surplus is maximized

c) many firms compete in the market

d) in the long run, all firms make zero economic profit

The market for non-alcoholic beverages is a monopolistic competition. How does each firm determine the quantity to produce and the price to charge? How could this market outcome be considered to be efficient?

The market for non-alcoholic beverages is a monopolistic competition, so the quantity produced is less than the efficient quantity. But the market might be considered efficient because of the gains that arise from the value consumers place on product variety. The market might be considered efficient if the loss arising from producing an inefficient quantity is offset by the gain from product variety.

Share this: