We can get the most burger for our buck in Ukraine. At the equivalent of $1.57, a Ukraine Big Mac is close to one-third the $5.04 price of one in the U.S. On the other hand, a Big Mac in Switzerland would require $6.59 in U.S. dollars.
From The Economist’s list of more than 50 countries, I selected 16 to show their price in U.S. dollars. You can see that a Big Mac is relatively inexpensive in China and Russia:
We can also look at the Big Mac Index through their world map. Comparing the January 2015 and July 2016 Indexes, you can see how the relative value of currencies have changed. Do note for example that the Australian dollar became undervalued:
Our Bottom Line: Purchasing Power Parity
The price of a Big Mac gives us some pretty good clues about the purchasing power of different currencies. Theoretically, the price of an identical good should be the same everywhere in the world after we adjust for exchange rates. If that were true, then your purchasing power would be the same in every country. But it is not.
And that takes us to purchasing power parity (PPP).
To explain purchasing power parity, we can look at the U.S. and China. A Big Mac will cost you $5.04 in the U.S. and 18.6 yuan in China. If, though, you were to convert $5.04, you get 33.67 yuan. But a Big Mac costs 18.6 yuan. With 33.67 you could get 1.81 Big Macs. The result? The yuan is undervalued and Chinese goods become more attractive in world markets.
What might affect the purchasing power of a currency?
It just might be efficiency. Better at making certain items, a country can charge less. Others try to make their exports more attractive by creating an undervalued currency. We can also add the currency impact of domestic instability or a sinking commodity price.
So, whether looking at Norway getting less for its oil or how a crisis in Ukraine is crushing its currency, behind every Big Mac price change there is a story.
My sources and more: My single source was The Economist but in my Bottom Line, I did use an explanation from a previous econlife post. Please note also that McDonald’s makes their Maharaja Mac with chicken in India.