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BIG MAC INDEX A look into purchasing power from the standpoint of a Big Mac HISTORY • Introduced in 1986 by Pam Woodall in The Economist. (Paper in London) • It started as humorous, but is now a popular way to observe purchasing power from country to country. WHY IT WORKS • BIG MACS are sold in 120 states • Prices of the exact same McDonald's burger can vary big time from country to country • By observing the BIG MAC we have a single constant product which allows us to compare prices and PPP. A LOOK AT THE NUMBERS • Roughly 2.5 million BIG MAC’s are consumed every day • That’s over 900 million BIG MAC’s each year! • 47 billion have been eaten worldwide • One man has eaten 26,000 on his own. His name is Don Gorske IN COMPARISON BIG MAC Index PPP • The BIG MAC index is a fun way to • Economic theory used to determine compare the value of different the relative value of currencies currencies around the world. • Estimates exchange rate between • By looking at the prices of BIG MAC’s countries in order for the exchange to we can see which countries have more be equal to the currency's purchasing purchasing power. power. A HEALTHY CHOICE • 550 Calories • 1100 mg of protein • 75 mg of cholesterol • 260 calories from fat BURGER PRICES Country Price in US dollars Switzerland $6.81 Australia $4.94 United States $4.20 Mexico $2.70 China $2.44 India $1.62 EXTENDED RESEARCH • The USB Wealth Management has done research to include a Working Time BIG MAC Index to show approximately how long a person has to work in order to make enough money for a BIG MAC THANK YOU MCDONALDS! DON GORSKE HAS A SECRET STASH OF BIG MAC’S IN HIS BASEMENT FREEZER .

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Burgernomics: a Big Mac Guide to Purchasing Power Parity
Burgernomics: A Big Mac™ Guide to Purchasing Power Parity Michael R. Pakko and Patricia S. Pollard ne of the foundations of international The attractive feature of the Big Mac as an indi- economics is the theory of purchasing cator of PPP is its uniform composition. With few power parity (PPP), which states that price exceptions, the component ingredients of the Big O Mac are the same everywhere around the globe. levels in any two countries should be identical after converting prices into a common currency. As a (See the boxed insert, “Two All Chicken Patties?”) theoretical proposition, PPP has long served as the For that reason, the Big Mac serves as a convenient basis for theories of international price determina- market basket of goods through which the purchas- tion and the conditions under which international ing power of different currencies can be compared. markets adjust to attain long-term equilibrium. As As with broader measures, however, the Big Mac an empirical matter, however, PPP has been a more standard often fails to meet the demanding tests of elusive concept. PPP. In this article, we review the fundamental theory Applications and empirical tests of PPP often of PPP and describe some of the reasons why it refer to a broad “market basket” of goods that is might not be expected to hold as a practical matter. intended to be representative of consumer spending Throughout, we use the Big Mac data as an illustra- patterns. For example, a data set known as the Penn tive example. In the process, we also demonstrate World Tables (PWT) constructs measures of PPP for the value of the Big Mac sandwich as a palatable countries around the world using benchmark sur- measure of PPP.
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The Big Mac Index This Page Intentionally Left Blank the Big Mac Index Applications of Purchasing Power Parity
The Big Mac Index This page intentionally left blank The Big Mac Index Applications of Purchasing Power Parity Li Lian Ong © Li Lian Ong 2003 Foreword © Bill Shields 2003 Softcover reprint of the hardcover 1st edition 2003 978-1-4039-0310-5 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted her right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2003 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 978-1-349-50855-6 ISBN 978-0-230-51241-2 (eBook) DOI 10.1057/9780230512412 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources.
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