Want fries with that?
No joke! There actually is an economic index based on MacDonald’s famous hamburger. Serious analysts are studying it with interest.
We’ve all heard of the indices or indicators – used by economists to measure various major factors. Stock indices like the S&P/TSX or the Dow Jones immediately come to mind. There’s also the consumer price index, which is used to measure inflation. Another well-known index is the gross domestic product (GDP), which lets us measure a country’s economic prosperity.
But how is the Big Mac considered an indicator?
The search for a universal index
The well-known magazine The Economist, launched the Big Mac index back in 1986. The objective was to compare the price of the same product in different countries. So, which product are we likely to find in most of the world’s countries? The obvious answer is: the Big Mac.
Using purchasing power parity (PPP), The Economist hoped to establish the degree of overvaluation or undervaluation of the local currency compared to the US dollar. In fact, the PPP theory states that exchange rates tend to equalize the price levels of a fixed basket of goods and services throughout the world. Thing is, the magazine was beaten at its own game, and its index, having become very popular, is now being used to measure a wide variety of economic factors, including the cost of living and the citizens’ standard of living.
The comparison game
The table below provides an idea of the comparisons that can be
made using the Big Mac index.
| A Brief Look at the Big Mac Index | ||
| Country | Price of the Big Mac (in US $) | Working time required to purchase a Big Mac |
| Switzerland | $5.66 | In Zurich: 15 min. |
| Eurozone | $4.50 | In Frankfurt: 16 min. In Paris: 21 min. In Barcelona: 21 min. In Rome: 25 min. |
| Britain | $3,90 | In London: 16 min. |
| Canada | $3.84 | In Toronto: 14 min. In Montreal: 17 min. |
| Colombia | $3.42 | In Bogota: 97 min. |
| United States | $3.41 | In Miami: 12 min. In New York: 13 min. |
| Mexico | $2.65 | In Mexico: 82 min. |
| Japan | $2.55 | In Tokyo: 10 min. |
| China | $1.51 | In Beijing: 44 min. |
Sources: The Economist, UBS. For more comprehensive tables, log on to the following sites:
• www.oanda.com/products/bigmac/bigmac.shtml
• http://www.msnbc.msn.com/id/14270071/
Other novel indices
Obviously, the Big Mac index is not perfect and is contested by some. Still, it’s interesting and sometimes intriguing. Among other things, it shows us that a Montreal resident has to work, on average, 21% longer than his or her Toronto counterpart to pay for the same Big Mac!
There are plenty of other enlightening and novel economic (and often more serious) indices. If you’re interested in this type of thing, search the Web for bohemian index, diversity index, gender development index, Gini coefficient, gross national happiness index…
Enjoy your discoveries … and three cheers for economic science!
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