Burgernomics: What is the Big Mac index?

The Big Mac is the same around the world, but its price is not — so it’s a good tool to compare purchasing power among currencies.

Transcript

00:00 What is the Big Mac Index?

00:03 The Big Mac is sold all over the world, but the same burger from the same fast food chain

00:07 doesn't cost the same in every country.

00:11 Why is that?

00:12 And what does it mean?

00:16 According to one theory, a perfectly functional global market wouldn't have these kinds

00:21 of price differences.

00:23 The fact that they do exist is because of differences in purchasing power in different

00:27 countries.

00:29 The Big Mac Index is an informal tool to capture these differences.

00:33 It was devised by economist editor Pamela Woodall and published in the British magazine

00:38 in 1986.

00:42 The index uses the price of a Big Mac in the United States as its reference.

00:47 In the US, a burger costs the equivalent of 5.28 euros in July 2023.

00:54 In South Africa, it costs about half that, 2.66 euros.

00:59 In other words, purchasing power in South Africa is only about half of what it is in

01:04 the US.

01:06 And there are other important differences.

01:08 A Big Mac is most expensive in Switzerland, at 7.32 euros, and cheapest in Taiwan, at

01:15 2.26 euros.

01:17 The Eurozone is in between, at about 5.51 euros.

01:22 This informal indicator also has its critics.

01:25 Other factors affect the price, such as transport costs, labor costs, energy prices, differences

01:31 within a country, and affluence and demand in each country aren't included.

01:36 And Big Macs aren't sold in some countries, like Iran and Yemen.

01:44 That's helped give rise to other informal indexes, pegged to products like the Apple's

01:48 iPad Mini or IKEA's Billy bookshelf.

01:56 But because it's so vivid, the Big Mac Index remains popular, and the index is still published

02:01 every year.

02:02 (upbeat music)

02:05 (upbeat music)