NCPA - National Center for Policy Analysis

THE MCECONOMY

July 14, 2010

What can a Big Mac tell us about the price of tea in China?  Turns out, a lot, says the Palm Beach Post. 

For 24 years, the Economist magazine has measured the value of currencies around the world using those two all-beef patties, special sauce, lettuce, cheese, pickles and onions on a sesame seed bun. 

China, for example, where you can buy almost two Big Macs for the price of one in America, has the world's most undervalued currency, the magazine recently concluded: 

  • The Big Mac Index was designed to explain an economic concept called purchasing-power parity, the concept that a dollar should buy the same amount from country to country.
  • If there is parity, the price of a commodity -- in this case, a Big Mac -- should be equal across the globe.
  • This year's index found that Big Mac prices, adjusted to U.S. dollars, ranged from $6.87 in Norway to $1.83 in China; the average price in the United States is $3.58. 

While the Big Mac Index is a novel way to look at what a dollar buys from one country to the next, it also has proved strikingly accurate at foreshadowing changes in currency, University of Florida professor Dave Denslow said. 

"If the Big Mac Index says that a currency is undervalued, it tends to appreciate," Denslow said. 

McDonald's global reach has made its signature sandwich the perfect, playful commodity, said Rick Wade, who owns and operates 10 franchises in northern Palm Beach County. 

The Big Mac is sold in more than 100 countries, in more than 80 percent of the world's 32,000 McDonald's restaurants.  Franchises in a few countries reject the product for cultural or religious reasons. 

Source: Laura Green, "The McEconomy," Columbus Dispatch/Palm Beach Post, July 13, 2010. 

For text:

http://www.dispatch.com/live/content/business/stories/2010/07/13/the-mceconomy.html

 

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