Monday, January 26, 2009

The Big Mac Index: Law of One Price vs. PPP

From The Economist, "The Big Mac index (see chart above) is based on the idea of purchasing-power parity (PPP), which says currencies should trade at the rate that makes the price of goods the same in each country."

Technically, the Big Mac Index is more of a test of the Law of One Price, an economic law that says "In an efficient market all identical goods must have only one price." Purchasing Power Parity generally applies to a basket of goods.

6 Comments:

At 1/26/2009 10:58 AM, Anonymous Anonymous said...

I wonder how much of the local prices are taxes? Is it possible to present this data tax-adjusted?
JCarrphion

 
At 1/26/2009 11:33 AM, Blogger misterjosh said...

I think I'd rather vacation in Malaysia than Switzerland. Dollar might last a little longer.

 
At 1/26/2009 3:06 PM, Blogger Bruce Hall said...

...or how much melamine is in the Chinese burgers... ;-}

 
At 1/26/2009 3:39 PM, Anonymous t jefferson said...

Showing Clowns and charts to gether is really poor taste. Don't ever underestimate the creepiness of a Clown

 
At 1/26/2009 10:25 PM, Blogger The Right Guy said...

Considering the top countries are Sweden, Norway, and Denmark, I'd bet taxes have something to do with it. I am surprised that it was cheaper in Australia. As for Malaysia, I wonder how much high price items cost there like cars. I've heard there is a high tariff on foreign cars.

 
At 2/05/2009 10:09 PM, Blogger SPELL OF LOVE said...

Dr..can i ask somthing..what is current price of big mac and Double cheese Burger in US outlet...I ask because u are staying in us,,the data in internet not make me satisfied...I appreciate if u can answer me...thanks

 

Post a Comment

Links to this post:

Create a Link

<< Home