Opportunity Cost, Does it Pay To Make Your Own Beer

Tomorrow is the first day of class for me (thank you January term), on the first day in intro to economics we usually teach the concept of opportunity cost. The idea is that cost of something is not only what you pay for it, but also what you could have had instead. If I go to a lunch with my colleague, I give up eating lunch while reading blogs.

Let’s take for example making your own beer. In a great post about a beer brewing economist, from Patrik Emerson at the Oregon Economics Blog, he points out that buying the ingredients to make your own beer cost about as much as beer from the liquor store.

For me my ingredients are usually slightly cheaper, and beer seems to be closer to $8 a six pack in the store (with tax). So I guess I’m saving about $5-10, for making my own beer. But wait, I have to spend all that time making it (probably about 5 hours of labor), when I could have been working additional hours. Luckily, I get paid more than $5-10 an hour, so traditionally economists would say, l’m losing money by making my own beer. Since there is the opportunity cost of my time in my beer production (I could have instead made more money giving extra lectures during the January term).

Now here’s another thought. For me beer making is leisure. Instead I could have gone to a couple of movies, purchased and read a book, or gone golfing. So by doing a leisure activity that produces benefits (ignoring opportunity costs), I’m actually coming out ahead.

If that does not quite make sense, do as the homebrewers do and “Relax have a home brew”

Who Cares about Rising Grain Prices? Beer Drinkers!

There are more serious problems with global inflation, which I talked about a few days ago here. However, my friend Dan, a fellow beer drinker and home brewer, pointed me to a recent article in the Miami Herald. Earlier I discussed the hops crisis, but grain price increases are also leading to price increases in beer. It seems the price of beer is rising on the order of 40% for microbrewed beers, which Dan and I like to drink. How are people responding, I like this quote from the article.

''It is a big hit,'' Foye said as he leaned over a microbrew at the bar of Beachwood BBQ in Seal Beach, Calif. He doesn't drink enough beer to make higher prices a ''budget buster,'' yet Foye still finds it ``irksome. . . . . It's like gas prices; what are you going to do about it?

Beer consumption is also being impacted by the housing price crisis (OK I’m not sure by how much), but this Miami couple is drinking less beer in response to a dive in their home prices. Although this should lower beer prices.

Even home brewers are not immune to the price shocks. As noted on the Northern brewer forum, grains for home brewers have seen price increases of 20% in the past 9 months.


How big a deal is this increase. People in my age group spend only about 1% of their total budget on alcoholic beverages according to Consumer Expenditure Survey, compared to about 5% on gas. Wonder what it would be for the average college student?

Hip Hop You Don't Stop

On Monday night I bottled my homebrew beer which is a clone of a 60 minute Dogfishhead IPA. Yesterdays, New York Times had an article on the growing trend of adding more and more hops to beer calling it extreme brewing. In fact Dogfishhead sells ingrendiant kits for their famous beer at a store called Xtreme brewing.

Hops are what make beer bitter. In the case of IPA, the 60 minutes referrers to adding hops for 60 minutes, Dogfishhead also makes 90 minute and 120 minute, with more hops. The 60 minute has twice as many hops as any beer I have ever brewed.

I love hops, maybe not 120 minutes worth of hops. But I have been hearing rumors of hop shortages and rising prices on the homebrew discussion board. The end of the article describes the trend well,

“….the brewing world is now facing an international hops shortage. No, it’s not because of the daunting amount of hops used in many extreme beers. It’s more a result of the normal cycle of supply and demand.

Overproduction of hops in the early 1990s resulted in excess supply and depressed prices, said Ralph Olson, a hops dealer based in Yakima, Wash. As a result, world hop acreage has fallen from about 234,000 in 1994 to 113,000 in 2006. It may take several years, Mr. Olson suggested, for hops production to be able to meet current demands.”

For a while I have wanted to grow my own hops, now I have even more reason to try it. Only I’m not sure they’ll grow in the apartment.

Make Your Own?

Over the weekend I brewed a clone of a 60 minute Dogfishhead beer. I purchased the ingredients and recipe from Xtremebrewing. The brew supply company was started by the brewers of Dogfishhead so that homebrewers like myself could brew their own versions of Dogfishheads own products. Although, I doubt in a blind taste test my brew will taste better than the original, I still brew anyways. It is slightly cheaper so that is one reason, but really the savings is only about $5-10 for fifty beers and about 4 hours of my time.

As the Freakonomics blog pointed out a while back there is a rise in knitting, gardening and other similar hobbies that produce something of use. The rise in part is due to the fact we work fewer hours. Another reason might be an evolution of the hobby industry, making it relatively easy for someone like me with little expertise and $100 worth of equipment to brew tasty beers. As our hobbies become more productive in terms of their output we want to do them more.

Now can I wait 6 weeks until my brew is ready?

The Economics of Homebrewing

This weekend I’m extremely excited to brew a 60 minute Dogfishhead IPA clone. The beer is known for its awesome amount of hops. A couple of thoughts on homebrewing and beer economics. My Vanilla Porter also just matured and it is one of the best I have brewed.

1. In DC even with shipping cost homebrewing saves you about 0.20 a beer over similar store brand beer. To brew 50 beers you have to purchase $30 worth of ingredients, plus some bottle caps and sanitizing supplies. There is also an initial fixed cost of about $100 for a fermenter. To recoup the $100 fixed cost for equipment you would have to brew 500 beers. I’m actually getting close to that after 6 years of brewing. We might also think about the opportunity cost of the time spent brewing, but I have too much fun brewing to worry about that.

2. In my intro to economics class, I often give an example that some product is found to prevent cancer, which increases demand for that product. It appears hops help prevent cancer, I just learned that the day I prepare to make the most hop filled beer I have tried.

3. I think I have finally figured out how to allocate my brewing resources so that I never run out of home brew beer. I can drink and give away about a 6 pack a week, so I brew a batch of 50 every two months.