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  • Samin Sabah Islam

Burgernomics!

The world is diverse, divided, and different in so many ways. Lots is lost in translation and misunderstanding. Sometimes all you need is a common factor to unite it all - like a Big Mac.

It's difficult to assess differences in price levels across countries when factors such as disparities in exchange rates, tastes and inflation distorts the comparison. Traditionally, identical ‘baskets of goods’ were selected from countries to evaluate the price differences between them. However, the obvious disadvantage is that these baskets are seldom identical. Growing up in Bangladesh, my grocery basket would contain rice, lentils and lots of spices while my British friend in the UK loads his with bacon, beans and bread. It's not a fair comparison.


Thus, The Big Mac index was created by The Economist magazine in 1986 to measure purchasing power parity between nations, using the price of a McDonald's Big Mac as the benchmark. With a few local differences in ingredients, a Big Mac in America for instance, is still a Big Mac in Japan.


Thus, was born Burgernomics! Although editors of the Economist had stressed that this concept must not be taken too seriously, the Big Mac Index has since become a global standard for price comparison.


The Big Mac Index of course isn’t the most reliable. The cost of the burger may vary severely across borders due to local production, delivery cost, advertising costs, transportation costs, and the status of the local market and not be a reflection of overall relative currency values. Moreover, prices of Big Macs vary even within a country depending on the area it's in, being more expensive in a big city compared to a rural area. But that’s okay, because the index was never meant to be an official indicator of price; it’s a concept to make exchange rate theory more digestible to the average person and should be taken as that.

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