McDonald’s

McDonald’s early success had to do with insistence on selectivity. Other chain restaurants in the 1960s had similar rules for food preparation and cleanliness. But no one enforced them so strictly, according to “McDonald’s: Behind the Arches”, a history of the company by John Love.

Stores would test the beef’s fat content with acid. Field agents would use hydrometers to check that the potatoes were not too watery.

The result of this passion is uniformity: the Big Mac is pretty much the same everywhere, notes the Economist. But it is not his honor.

Buying power in Big Mag

A Big Mac in America costs 5,69 $. At euro zone, it costs the equivalent of $6.09. And in Taiwan, it costs only $2.28, less than half.

There is no value, only to find the best offer. It is also to test an important economic principle known as purchasing power parity.

According to this principle, the value of a currency should reflect its purchasing power: its dominance of goods and services, including burgers. If something costs SKr50 in Sweden and the same thing costs $5 in America, then SKr10 should be worth $1. If they’re worth less than that, the krone is “undervalued” against the dollar, according to our benchmark.

One difficulty in testing this principle is finding exactly the same thing in both countries. But in the case of the Big Mac, that particular problem has been solved by testers in McDonald’s supply chain.

What does our latest burger price comparison show? Some currencies, including the British pound, the Swedish krona and the Canadian dollar, traded in the foreign exchange markets for about what one would expect given their small purchasing power. Other coins, however, defy the basic principle.

A minority are “overvalued”: they are worth more than their ability to afford a burger justifies. If you convert a burger’s worth of dollars into her currency Switzerlandyou will only receive five Swiss francs. That’s enough to buy about 70% of a burger. What you can call a Mid Mac.

Exact countries

Rich countries are often expensive. A few high-productivity, high-wage industries raise wages across the labor market. This raises costs and prices in less productive sectors shielded from foreign competition.

For this reason, our Big Mac indicator also comes in a “customized” version, which shows whether a currency is worth more than you’d expect given the country’s GDP per capita. Even by this measure, Switzerland is expensive.

And there is another anomaly: h Argentina. Its peso is overvalued despite the fact that the country is not rich. You can buy over 5,300 pesos for $5.69 at the official exchange rate. That sounds like a lot until you realize that a Big Mac costs 6,100 pesos, up from 3,150 pesos just seven months earlier.

These anomalies may simply reflect flaws in our index. Perhaps the price of a Big Mac is not representative of prices in other parts of the economy. There is, after all, more to life than burgers.

The World Bank is leading a much larger, more sophisticated effort to compare the prices of hundreds of similar products around the world. Do his results overturn ours?

Source: ot.gr