Big Mac
A few weeks ago, I read about an article of the "Big Mac Index" in the Economist magazine. Now for those people who have no clue what I am talking about, please look the related Wiki link. Now I have followed the Big Mac index for more than two decades. (Yes, I have been reading the Economist since I was studying.) As usual, the article explained that it is just a simple basket of goods to test the Purchase Power Parity between countries.
Logically, the price of a Big Mac in US of A and most other countries with open trade policies be identical. The cost of sesame seed buns and beef patties should have not drastic variances so the cost of the Big Mac should be similar. Moreover, it is not in the interest of MacDonalds to have drastically different priced Big Macs since it will only upset their cosmopolitan customers. There maybe some variances in the some places. (I remembered reading about the cost of eating a MacDonalds in the first Moscow restaurant was relatively expensive costing more than a month's salary. However, that was more one and a half decade ago when Russia was slowly opening up its economy.)
The article was trying to make a point about whether China's economy had overtaking the US of A's economy since it was possible to purchase more Big Mac in China with China's GDP than US of A could purchase Big Mac at US of A prices with US of A's GDP. The article also qualified that there are many reason why Big Mac prices are different between countries.
One main reason why I feel that the Big Mac Index could give a distorted picture is that the demand for Big Mac in US of A is more inelastic than for Big Mac in Asia. As stated, I have read about the Big Mac Index for more than two decades but I had not eaten a Big Mac. I also knew that it had nothing to do with my dietary preferences since I have no issues with the eating Burger King's (Or Wendys or Carl's Jr) beef burgers.I also tried to recall any occurrence of people ordering Big Macs in my country and I came up with a blank. I checked with my peers who also remarked that they have not eaten the Big Mac. (BTW, they all knew what a Big Mac was. Its iconic picture of a burger with 3 buns separated by 2 beef patties is world famous.)
If most Asians will happily give the Big Mac a miss, its use in the basket of goods could be badly represented compared to Coke or fries (The other two iconic products in MacDonalds). It is like selling a Blackberry smartphone in Asia for a fraction of its price in the US of A today. Some people in Asia will buy it but I am not betting that the Blackberry smartphone will suddenly dominate in Asia.
BTW, I tried a Big Mac today. All I can say is that I am not going back to Macdonalds for a beef burger.
Logically, the price of a Big Mac in US of A and most other countries with open trade policies be identical. The cost of sesame seed buns and beef patties should have not drastic variances so the cost of the Big Mac should be similar. Moreover, it is not in the interest of MacDonalds to have drastically different priced Big Macs since it will only upset their cosmopolitan customers. There maybe some variances in the some places. (I remembered reading about the cost of eating a MacDonalds in the first Moscow restaurant was relatively expensive costing more than a month's salary. However, that was more one and a half decade ago when Russia was slowly opening up its economy.)
The article was trying to make a point about whether China's economy had overtaking the US of A's economy since it was possible to purchase more Big Mac in China with China's GDP than US of A could purchase Big Mac at US of A prices with US of A's GDP. The article also qualified that there are many reason why Big Mac prices are different between countries.
One main reason why I feel that the Big Mac Index could give a distorted picture is that the demand for Big Mac in US of A is more inelastic than for Big Mac in Asia. As stated, I have read about the Big Mac Index for more than two decades but I had not eaten a Big Mac. I also knew that it had nothing to do with my dietary preferences since I have no issues with the eating Burger King's (Or Wendys or Carl's Jr) beef burgers.I also tried to recall any occurrence of people ordering Big Macs in my country and I came up with a blank. I checked with my peers who also remarked that they have not eaten the Big Mac. (BTW, they all knew what a Big Mac was. Its iconic picture of a burger with 3 buns separated by 2 beef patties is world famous.)
If most Asians will happily give the Big Mac a miss, its use in the basket of goods could be badly represented compared to Coke or fries (The other two iconic products in MacDonalds). It is like selling a Blackberry smartphone in Asia for a fraction of its price in the US of A today. Some people in Asia will buy it but I am not betting that the Blackberry smartphone will suddenly dominate in Asia.
BTW, I tried a Big Mac today. All I can say is that I am not going back to Macdonalds for a beef burger.
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