What is the Big Mac Index?

Last time, I posted about Big Mac.
Following the last posting, this time on the Big Mac Index,
Let's find out.

hall we find out when the Big Mac index first started?
The Bic Mac Index is an economic indicator that compares purchasing power assessments in each country and was first used in the Economist magazine in the UK in September 1986.

Big Mac, McDonald's representative hamburger, is available in stores in many countries.
When goods of the same quality, size, and material as Big Mac are sold in many countries around the world, the price of each country can be compared by country by dollar. By comparing prices of Big Macs, it is possible to figure out the proper level of exchange rates by country. Taking this into account, the index was developed by the Economist, a British economic weekly, based on price.

 

 

If the Big Mac index is high, the price is high and the value of the currency is high, and if the Big Mac index is low, the price is low and the value of the currency is low. Calculating the appropriate exchange rate through the Big Mac Index is as follows. For example, if a Big Mac costs $5.00 in the U.S. and a price of 4.00 in the U.K., the purchasing power ratio at this time is '5.00/4.00 = 1.25'. If the exchange rate is 1 pound to 1.33, you can see that the pound is overvalued at 1.25 < 1.33. Usually, compared to the United States, European countries are more expensive and Asian countries are less expensive.

But the Big Mac Index also has its drawbacks. This is because in countries where there are many hamburger companies, hamburger prices are lowered, and employee salaries, store rents, taxes, and government regulations vary from country to country. And it is not clear whether the standards of Big Macs by country are the same. For this reason, it is difficult to judge prices based on the Big Mac Index alone, so it is only used as a reference when comparing prices of each country.

In addition to the Big Mac Index, there are also "Starbucks Latte Index" and "Anycall Index," because if there is a homogeneous object sold in almost every country, the figures can be calculated as well. They also calculate how many other items can be purchased at the price of a Big Mac and use them as an indicator. The pros and cons of this index are almost the same as those of the Big Mac index.

It's amazing that there are many other indexes besides the Big Mac index.

So far, we've learned about the Big Mac Index.
Next, we will learn about interesting language and culture in Korea.