Big Mac- Baht Ppp/fx

[baht&sold]

Not a huge fan of Mc'ds but burgereconomics has an interesting theory regarding purchasing power parity and fx rates. Of course, there's alot more factors behind this but it's a fun comparison anyways... eg: Thailand, 3rd cheapest in the world and Switzerland, almost 5 usd for a Big Mac?

BIG MAC INDEX

Source: The Economist

Burgernomics is based on the theory of purchasing-power parity, the notion that a dollar should buy the same amount in all countries. Thus in the long run, the exchange rate between two countries should move towards the rate that equalises the prices of an identical basket of goods and services in each country. Our "basket" is a McDonald's Big Mac, which is produced in about 120 countries. The Big Mac PPP is the exchange rate that would mean hamburgers cost the same in America as abroad. Comparing actual exchange rates with PPPs indicates whether a currency is under- or overvalued.

[cclub75]

Burgernomics is based on the theory of purchasing-power parity, the notion that a dollar should buy the same amount in all countries.

It's interesting regarding the absolute price of a Big Mac... In this regard, yeah Thailand is very cheap.

But this whole theory about exchange rate is seriously flawed.

Why the Big Mac looks (only looks) very cheap in Thailand, compare to Switzerland for instance ?

Because, Thailand is a poor country. The purchase power of Thai is much lower.

And if we go further : actually, the Big Mac is expensive for Thais. I remind you that minimum wage is 180 THB per day... So 1 day work, a thai worker could buy 3 Big Mac.

The idea that "a dollar should buy the same amount in all countries" is stupid. Even in Europe, with Euro currency, prices are not the same in all the countries for the same goods...

So between Thailand and Switzerland... well it's not gap. It's an abyss.

[thaistick]

Sad that a junk food like the Big Mac would be the barometer.And it is seriously flawed as beef in Australia or Argentina would be much cheaper than beef in other countries.And beef is the most inefficient source of protein The world should grow a brain and stop eating Big Macs and becoming as fat and unhealthy as Americans.

[Fast Eddie]

I would agree that 'Burgernomics' looks seriously flawed. It doesn't surprise me that six of the bottom seven in the index are Asian countries. That type of food doesn't even come close to their traditional food of choice, so if you want to sell McDonald's in that area of the world you're going to have to make the prices cheap. The other country in the bottom seven of course being Argentina, and as has already been mentioned, they are big producers of beef. I've not been to Argentina to see what the price of a steak is, but i'm guessing that it's not too expensive so the price has to be somewhat competitive when we're talking about substandard beefburgers.

Edited January 20, 2006 by Fast Eddie

[samran]

Would agree to many of the reasons outline above. However, the big mac is chosen due to the fact that it best represents the theory of PPP, that a certain product sold in different markets, made with the same level and amount of inputs (labour, production techniques), should in fact cost the same.

What distorts the prices however, are things like trade barriers, subsidies, inflexible labour markets due to different minium wage laws and immigration restrictions, which affect different markets.

Other things being equal, if a McDonalds worker in Indonesia, China, Argentina, Malaysia, Thailand etc etc, were allowed to jump on a plane tomorrow and go work in the UK, McDonalds in Thailand would be forced sooner or later to pay their workers here more to stem the exodous.

Equally, (other things being equal again), if the EU scrapped its trade barriers and stopped bloody lavishing french cows, allowing Aregeinian beef imports, then the price of a burger in the EU will decrease somewhat towards asian levels.

[think_too_mut]

Thai Mac staff are paid on 18-25 baht per hour.

[britainmal]

Would agree to many of the reasons outline above. However, the big mac is chosen due to the fact that it best represents the theory of PPP, that a certain product sold in different markets, made with the same level and amount of inputs (labour, production techniques), should in fact cost the same.

I would agree also

What distorts the prices however, are things like trade barriers, subsidies, inflexible labour markets due to different minium wage laws and immigration restrictions, which affect different markets.

I agree with you again, very smart Samran.

Other things being equal, if a McDonalds worker in Indonesia, China, Argentina, Malaysia, Thailand etc etc, were allowed to jump on a plane tomorrow and go work in the UK, McDonalds in Thailand would be forced sooner or later to pay their workers here more to stem the exodous.

That is correct also, but don't forget this would affect other sectors. This means raise wages, raise the cost of living, and Thailand is no longer a low cost destination.

If Thailand allowed people from neighbouring countries to work in McDonalds', the price of a burger maybe even lower. Please remember not everybody working in McDonalds is poor just go to Mc Donald's in Siam Square and you can meet the PM's daughter.

Equally, (other things being equal again), if the EU scrapped its trade barriers and stopped bloody lavishing french cows, allowing Aregeinian beef imports, then the price of a burger in the EU will decrease somewhat towards asian levels.

I agree with that.

[Thaipwriter]

I can remember skiiing in Austria about 15 years ago. At the time a Big Mac cost the equivalent of 5GBP which would be more like 8 USD. OUCH!

[Wes Turner]

I do love the Big Mac, it never looks like it does in the picture but wherever you go in the world they all taste as delicious as the next.

Here in Thailand they are considerably cheaper than back home and if you're real lucky, it will also be hot.