Something ELSE a Big Mac Tells You.

The Big Mac index* by the Economist is nothing new, but here’s something else the economics of a Big Mac derives. Preeeeetty interesting stuff.

Working Time Needed to Buy a Big Mac

Working Time Needed to Buy a Big Mac

*And I quote “The Economist’s Big Mac index is based on the theory of purchasing-power parity, under which exchange rates should adjust to equalise the cost of a basket of goods and services, wherever it is bought around the world. Our basket is the Big Mac. The cheapest burger in our chart is in China, where it costs $1.30, compared with an average American price of $3.15. This implies that the yuan is 59% undervalued.”

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2 Responses

  1. Good post! And as I think you allude to, it is true given certain assumptions, namely that there is an absence of regulatory barriers, though this only happens for comparable countries usually. There are some other interesting notes to make about this:

    A much more important factor here explaining probably 80% of the differences in prices is that people in developed countries need to spend far less a percentage of their income on food in general. The U.S. has led the world for many years in this figure, although its ability to spend so little on food has another side effect: the constant and bulk buying of really fatty foods, which leads to not-so-good things. But as an example, U.S. citizens pay on average some very small figure (3%?) of their income on food per year, while Indonesians on average pay a rather large figure (50%?), just like the Chinese still do on average. Hong Kong, of course, is not really China when it comes to most things and the income figure (7-10%) is much lower for them.

    • Hey Admiral (if I may call you that). Thanks for the great feedback! Very informative indeed.

      Here’s something else I wanted to ask my readers in the original post, but decided against it thinking it was too technical for a food blog, but clearly, you may be able to answer. Why Big Macs? Wouldn’t Coca-Cola have a broader coverage and influence on global population to warrant a better interpretation of PPP? A can of Coke is probably more affordable (I’ll bet more people in the world, especially in developing countries, have tried a can of Coke, as opposed to a Big Mac), thus allowing a much deeper look into the spending habits of developing countries. Then again, the end-prices (the price sold) of a can of Coke varies immensely even within a city, I suppose there’s no real way to capture a uniform price – perhaps something that Big Mac does better. Are there any other reasons?

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