Big Mac Economics

 McDonalds is everywhere. In the contiguous United States, the farthest you can get from one is this spot in the Sheldon National Antelope Refuge in Nevada. Even then, you only have to drive 115 miles to the nearest golden arches. Around there world, there are more than 36,000 locations in 119 different countries. One of the defining characteristics of McDonald’s is the commitment to consistency across the brand. While there are regional differences to the menu such as KiwiBurgers in New Zealand or Chicken Congee in Indonesia, the core menu items such as Big Macs, Chicken Nuggets, and Fries are always avaliable. That means that the same items are being made in the same way with the same ingredients in very different economies around the world. Obviously, BigMacs don’t cost the same everywhere. A Big Mac costs on average $4.79 in the US, so if you were to charge the equivalent in Kenya, 480 Shilling, nobody would buy it because that’s double the average daily salary. That’d be like charging $200 for a big mac in the US. That’s why McDonald’s sets the local price for burgers based on a variety of factors such as labor costs, rent, ingredient costs, and local income levels. Now for some real economics. Purchasing Power is the amount of goods you can get for one unit of currency. Let me explain. In the US, the average price of a Big Mac across all markets is $4.79. In Sweden, the cost of a BigMac is 44 krona. 44 Krona is equivalent to $5.13. That means that in the US, you can get 20.8% of a BigMac for a dollar, while in Sweden, you can only get 19.5% of that burger. So, in terms of the BigMac, the purchasing power of the US dollar is higher. You get more bang for your buck. This also means that the Swedish Krona is overvalued in terms of exchange rates by about 6.1%, at least according to the Big Mac Index. The Economist Magazine first created the index in 1986 as an informal way of comparing Purchasing Power between currencies. So now let’s look at the numbers. In Venezuela, the cost of a BigMac is equivalent to $0.66—that’s the cheapest Big Mac in terms of equivalent US dollars in the world. This is in largely due to recent currency devaluations and high inflation in the country. It’s possible that the cost of a Venezuelan Big Mac will soon rise in response. This means that for the cost of one American Big Mac, you could buy 7 Venezuelan Big Macs. After Venezuela, the countries with the cheapest Big Macs are Russia, Ukraine, South Africa, and Malaysia. For the other side of the spectrum, the top five most expensive big macs come from Switzerland, Sweden, Norway, the US, then Denmark. That’s right, the US is home to the fourth most expensive Big Mac in the world. What’s also interesting is to look at how long it takes individuals to earn enough money to buy a BigMac in different cities around the world. In Nairobi, Kenya, an average worker would have to rack up 173 minutes on the clock to pay for one Big Mac. Compare that to an worker in Hong Kong, who would only have to work 8.7 minutes for a burger. The quickest one can earn a burger in the US is in Miami, where the average individual would only have to work for 10.7 minutes to pay for a Big Mac. Now, this index isn’t perfect. While the cost of ingredients is pretty similar across all countries since all ingredients are held to the same standard, the index doesn’t account for the wide differences in labor and land costs. A burger will cost less to make in India because McDonald’s doesn’t need to pay as much for employees and retail space.