Bar prices in Madrid

As a rough guide, you'll need a little help with the names of drinks in Madrid:

Caña:

A small draft beer (approx. 8oz.) normally at a very reasonable price (often 1€).

You can say to the bartender: "¡dos cañas, por favor!" - you just asked for two drafts.
You can easily get a bottle of beer - just ask for "una botella de Mahao" (pronounced "Mao") and you will have ordered the Budweiser of Spain. Many bars will also have a beer like Heineken or Amstel Light.

Trago:

A liquor drink. Often 5-8 euros (or more!).

You can say to a friend: "¡échame un trago!" - you just said "give me a drink!"
More likely, you will say to the bartender: "Dame un trago de rum y coca, por favor" - you just asked for a Cuba Libre.

With these drinks, you will be served your drink in parts - a glass of ice with the liquor and then the small bottle of Coca-Cola (or Red Bull or Fanta Orange) on the side. This is actually a good thing, because the drink are normally poured with a lot of liquor, so for 10€

Like most of the world, a neighborhood bar will offer you the lowest prices - often you will get a small tapa with your drink or at least some olives. Restaurants make a hefty part of their profits from drinks, so you will find them next highest in price. Bars aren't too bad, especially when compared with the prices in the discos/clubs - figure that you will be paying at least 10€ for a drink or a bottle of beer.

You will see many madrileños having a drink in the middle of the afternoon, at 10PM, even the sweet old lady from down the street having a vermut at midnight. Don't make the mistake of thinking the Spanish are alcoholics - they understand how to drink in moderation better than most Americans, because they know a drink here or there is much better than waiting until 11PM and then drinking 6 drinks. Follow their example - have a drink when you're thirsty. It's a vacation to relax and enjoy, not a race to get drunk.

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