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Big Mac Index

McDonald’s is world famous for their standardised operations, products and restaurants. Although in recent years they have introduced the strategy of localisation to adjust for the dietary requirements of various countries. Despite the localisation strategy the Big Mac is now iconic and in 1986 The Economist used the product known as the Big Mac to explain the concept of exchange rates and currencies values. Using a world known product, was thought to make the concept of currencies values more understandable to the general population.

 

For example in July 2014 the price of a Big Mac in America averaged $4.80 whereas in China it was $2.73 suggesting that the Yuan was 43% undervalued. The index uses the concept of the Purchasing Power Parity (PPP) to analyse the differences in currencies. Although the Big Mac Index is now used throughout the world it has to be remembered that the tool was only devised as a light hearted way of explaining some fundamental economic theory. Since the initial 1986 model there is now an adjusted index, which accommodates some of the fundamental accounting theory that accepts that costs are not the same in all circumstances.  For example you would not expect the cost of labour to be the same in a developing country as in a more advance economy.  In the book we considered the need to provide accurate costing data to compare any pricing strategy.

 

General information from: http://www.economist.com/content/big-mac-index