Burger Economics has become a more significant concern from an economist’s point of view and consumer perception. It was introduced back in 1986 by Pam Woodall to understand the concept of Purchasing Power Parity (PPP) while explaining the idea of the Big Mac Index. Because the idea was more appealing, it started to be published by The Economist annually.
The Big Mac PPP
Burger Economics, or more precisely Burgeromics, is the outcome of something that was once illustrated humorously but later took on a new meaning since that day. The Economist magazine explained burgeromics with the help of purchasing power parity theory, keeping an account of Big Mac sales and purchases under observation. It resulted in the factual formation of Burger Economics, where the Big Mac Index could be compared to place a well-presented foreign exchange account.
According to Economists, the Big Mac PPP has an exchange rate that can be compared using the currency of two countries. For example, take the price of a Big Mac in one country and the price of the same Big Mac in another country with different currencies. Now, divide the prices of the first country to that of the second country. If this value is lower than the actual exchange rate, the first currency is undervalued, or the second country’s currency is overvalued.
The Difference in the Currency Exchange Rate
The Big Mac PPP is more likely to determine the exchange rate of MacDonald’s’ hamburger. The Big Mac Index is a friendly guide that determines the rates of hamburgers at places with different currencies, which are similar despite the currency difference. It means that the price of a Big Mac in the United States is almost the same as in other places globally, irrespective of the currency exchange. Purchasing power parity equalizes or adjusts the price of goods and services across different states.
Economists have thoroughly researched this exchange rate index of Big Mac, describing the variants in consumer purchases. For example, Michael Pakko and Patricia Pollard explain that countries that prefer something other than beef, like India, are not included in the Big Mac survey. Similarly, due to consumption differences, Islamic countries that prefer halal food or Israel’s kosher diet are also excluded from the survey of McDonald’s consumers and the Big Mac Index.
Effects of Big Mac on Fast Food Consumers
Even though the Big Mac Index is a global standard, it is not wise to confuse Burgeromics with currency misalignment. It is merely a tool that makes the exchange rate theory easily understandable. It is now included in several economics studies for a better understanding. For those who lean on fast food for most of their lives, there is a more authenticated gourmet version of the index in nearly 48 countries.
According to keynote speaker Dan Ariely, people purchase burgers at a lower price in a fast-food restaurant while they are happy paying more for the same product in a food carnival. This difference is because of the will and decision-making process. Therefore, this occasional price exchange is not included in the Burgeromics survey.
Consumers who buy Big Mac burgers might be interested in Burgeromics. Most people crave burgers at different times of the day, which can be eased by knowing Burger Economics as a better deal for everyday burger yearning. Street food or fast food is the most common American purchase that helps their economy and creates fierce competition in the food industry.
Using the cost-effective benchmark and its comparison expresses how a country’s economic power is increasing due to the popularity of one sector. It also affects foreign trade that exchanges different currencies. In this way, burgeromics provides a taste of international economics.
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