March 9th, 2021
A look at the Big Mac Index and what $50 worth of Big Mac’s look like in different countries.
By Aks Kuldeep Singh
The Big Mac index is an informal way of measuring Purchasing Power Parity (PPP). Pam Woodall introduced it in September 1986. The Economist has been publishing it annually since then. The index has also given rise to the word burgernomics.
It follows that the rate between 2 currencies should naturally adjust so that a basket of goods and services costs the same in both currencies. The basket in question here is a single Big Mac burger as sold by McDonald.
The reason for choosing the Big Mac is because the average basket of goods in America is different from the average basket in China.
The Big Mac is made from the same ingredients worldwide apart from a few exceptions. By comparing the cost of a Big Mac in different countries we can see whether a currency is over or undervalued compared to another currency.
The Big Mac was chosen because McDonald’s is present in 120 countries and the Big Mac is one of its flagship products. Thus, the Big Mac enables a comparison between many countries’ currencies. Since a Big Mac can be purchased almost everywhere across the globe, it’s a great item to use as a standard measure of value across several countries
The Big Mac PPP exchange rate between two countries is obtained by dividing the price of a Big Mac in one country by the price in another country (in their respective currencies). This value is then compared with the actual exchange rate. If it is higher, then the first currency is overvalued (according to PPP theory) compared to the second. And conversely, if it is lower, then the first currency is undervalued.
The cheapest country to buy a big mac from, as of Jan 2021, is Lebanon($1.77) followed by Russia($1.81). Whereas, the most expensive country is Switzerland($7.29) followed by Sweden($6.37).
The views expressed in this article are those of the author alone and not the WorldRef.
Explore WorldRef services to learn how we are making your global expansion easier and economical!
International Business Development | Global Market Research | International Market Visits | Global Branding | International Trade Exhibition | Global Business Verification | Industrial Procurement | After- Sales Service Support