Question

Suppose that changing climate increases the price of hops (an input in the production of

alcohol). How will this affect the market for alcohol? Assuming that the price floor or tax on

alcohol sales is operating, what does the government need to do in order to maintain an

efficient level of alcohol consumption

Answer 1

When the price of hops increases, the input in production of alcohol will also increase. It means that the producers are forced to increase the prices to enable the marginal revenue to equal the marginal cost.

In-case of such unfortunate ocuurences ,the government ought to strip off the price floor and tax system since if such regulatory practices are still in action, the prices would surge up and demand for alcohol would be minimal. This may lead to closure of such plants that deal in given goods.