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	Topics Big Mac index Topic Home The Big Mac Index is an informal way of measuring the purchasing power parityPurchasing power parity In economics, purchasing power parity is a theory which says that the long-run equilibrium exchange rate of two currencies ... (PPP) between two currenciesCurrency Overview A currency is a unit of exchange, facilitating the transfer of goods and services.... and provides a test of the extent to which market exchange rateExchange rate In finance, the exchange rate between two currencies specifies how much one currency is worth in terms of the other.... s result in goods costing the same in different countries. As stated in The EconomistThe Economist *The Economist* is a weekly news and international affairs publication of The Economist Newspaper Ltd edited in London, UK... , it "seeks to make exchange-rate theory a bit more digestible". Overview The Big Mac Index was introduced by The EconomistThe Economist *The Economist* is a weekly news and international affairs publication of The Economist Newspaper Ltd edited in London, UK... in September 1986 as a humorous illustration and has been published by that paper annually since then. The index also gave rise to the word burgernomics. The Investment Bank UBSUBS UBS is an abbreviation that has several meanings:... has expanded the idea of the Big Mac Index to include the amount of time, that an average worker in a given country has to work to earn enough to buy a Big Mac. The working time based Big Mac index might give a more realistic view of the purchasing power of the average worker, as it more factors, such as local wages, into account. One suggested method of predicting exchange rate movements is that the rate between two currencies should naturally adjust so that a sample basket of goods and services should cost the same in both currencies. In the Big Mac Index, the "basketBasket (finance) A basket is an economic term for a group of several securities created for the purpose of simultaneous buying or selling.... " in question is considered to be a single Big MacBig Mac The Big Mac is a type of hamburger, a signature sandwich sold by the McDonald's chain of fast-food restaurants since 1968, m... burger as sold by the McDonald'sMcDonald's McDonald's Corporation is the world's largest chain of fast-food restaurants, selling variations on meals comprising of hamb... fast food restaurant chain. The Big Mac was chosen because it is available to a common specification in many countries around the world, with local McDonald's franchiseesFranchising Franchising is a method of doing business wherein a franchisor licenses trademarks and *tried and proven* metho... having significant responsibility for negotiating input prices. For these reasons, the index enables a comparison between many countries' currencies. Some menu items are market specific, which would hinder a comparison, if used. Still other menu items are specially priced, such as the dollar menu in many U.S. restaurants consisting of sandwiches and other items that cost $1. The Big Mac PPP exchange rate between two countries is obtained by dividing the price of a Big Mac in one country (in its currency) by the price of a Big Mac in another country (in its currency). This value is then compared with the actual exchange rate; if it is lower, then the first currency is under-valued (according to PPP theory) compared with the second, and conversely, if it is higher, then the first currency is over-valued. For example, suppose the price of a Big Mac is $2.50 in the United StatesUnited States The United States of America, also known as the United States, the U.S., the U.S.A., and America, is... and £2.00 in the United Kingdom; thus, the PPP rate is £2.00/$2.50 = 0.80 pounds/dollar. If, in fact, £0.50 buys $1 (or £1 buys $2.00), then the dollar is under-valued by £0.30 (£0.80 - £0.50), or 38% (£0.30/£0.80) in comparison with the price of the Big Mac in both countries. Variants The Economist sometimes produces variants on the theme. For example in January 2004, it showed a Tall Latte index with the Big Mac replaced by a cup of StarbucksStarbucks Starbucks is the world's largest multinational chain of coffee shops, with corporate headquarters located in the SoDo neighb... coffeeCoffee Coffee is a popular beverage prepared from the roasted seeds of the coffee plant.... . In a similar vein, in 1997, the newspaper drew up a "Coca-ColaCoca-Cola Coca-Cola is a carbonated cola and the world's most popular soft drink.... map" that showed inverse proportionality between the amount of Cola consumed per capitaPer capita Per capita is a Latin phrase meaning for each head.... in a country and that country's health. In 2007, an Australian bank, Commonwealth Securities, adopted the Big Mac index and created the iPodIPod Overview The iPod is a brand of portable media players designed and marketed by Apple Computer.... Index. The bank's theory is that since the iPod is manufactured at a single place, the value of iPods should be more consistent globally. Though this theory can be criticised for ignoring shipping costs, which will vary depending on how far the product is delivered from its "single place" of manufacture. Limitations The burger methodology has limitations in its estimates of the PPP. In many countries, eating at international fast-food chain restaurants such as McDonald'sMcDonald's McDonald's Corporation is the world's largest chain of fast-food restaurants, selling variations on meals comprising of hamb... is relatively expensive in comparison to eating at a local restaurant, and the demand for Big Macs is not as large in countries like IndiaIndia India , officially the Republic of India, is a country in South Asia.... as in the United StatesUnited States The United States of America, also known as the United States, the U.S., the U.S.A., and America, is... . Social status of eating at fast food restaurants like McDonald's, local taxes, levels of competition, and import duties on selected items may not be representative of the country's economy as a whole. In addition, there is no theoretical reason why non-tradable goods and services such as property costs should be equal in different countries: this is the theoretical reason for PPPs being different from market exchange rates over time. Nevertheless, the Big Mac Index has become widely cited by economists. Figures Five most expensive Iceland - USD 7.44 Norway - USD 6.63 Reunion Island - USD 6.23 SwedenFacts About Sweden The Kingdom of Sweden is a Nordic country in Scandinavia.... - USD 5.33 Switzerland - USD 5.05 Five most affordable India - USD 1.40 China - USD 1.41 Hong Kong - USD 1.54 Malaysia - USD 1.57 Venezuela - USD 1.58 Ten fastest earned Tokyo - 10 minutes Los Angeles - 11 minutes Chicago - 12 minutes Miami - 12 minutes New York - 13 minutes Toronto - 14 minutes Auckland - 14 minutes Sydney - 14 minutes Zurich - 15 minutes Dublin - 15 minutes Ten slowest earned Bogotá - 97 minutes Nairobi - 91 minutes Jakarta - 86 minutes Lima - 86 minutes Caracas - 85 minutes Mexico City - 82 minutes Manila - 81 minutes Mumbai - 70 minutes Sofia - 69 minutes Bucharest - 69 minutes See also Golden Arches Theory of Conflict PreventionList of countries with McDonald's franchises McDonald's is one of the most prolific restaurant franchisers in the world, with locations in over 100 countries and territories.... Christmas Price IndexChristmas Price Index The Christmas Price Index is a tongue-in-cheek economic indicator, maintained by the U.S.... Recession indexRecession index The recession index is an informal index created by The Economist which counts how many stories in the Washington Post and ... List of unusual units of measurement List of humorous units of measurementList of humorous units of measurement Many comedians and humour writers have made use of, or invented, units of measurement intended primarily for their humour value.... External links — contains Big Mac Index data dating back to 1997 (Economist.com subscription required for detail) Aplia - Discusses origins & significance to international investors - February 9, 2007 Good report on purchasing power containing a Big Mac index (in minutes) as well as for staples such as bread and rice for 71 world cities. Very thorough article on the time-based Big Mac index.