Big Mac prices around the world as indicator of a nations economy.

This helps to explain why commodity prices in general and oil prices in particular have been surging, even though growth has been relatively subdued in the rich world since 2000. Emerging economies are not only growing much faster than rich economies and are more intensive in their use of raw materials and energy, but they also account for a bigger chunk of global output if measured correctly. As Charles Dumas, an economist at Lombard Street Research, neatly puts it, even if a Chinese loaf is a quarter of the cost of a loaf in America, it uses the same amount of flour.

All measures of PPP are admittedly imperfect. But most economists agree that they give a more accurate measure of the relative size of economies than market exchange rates—and a better understanding of some of the dramatic movements in world markets. The humble burger should be part of every economist’s diet.

The Big Mac Index | Food for thought | Economist.com

Another write up of this is here [www.answers.com/topic/big-mac-index]

“The Big Mac PPP exchange rate between two countries is obtained by dividing the cost of a Big Mac in one country (in its currency) by the cost of a Big Mac in another country (in its currency). This value is then compared with the actual exchange rate; if it is lower, then the first currency is under-valued (according to PPP theory) compared with the second, and conversely, if it is higher, then the first currency is over-valued.

For example, suppose a Big Mac costs $2.50 in the United States and £2.00 in the United Kingdom; thus, the PPP rate is 2.50/2.00 = 1.25. If, in fact, the dollar buys £0.55 (or £1 = $1.81), then the pound is over-valued (1.81 > 1.25) with the respect to the dollar by 44.8% in comparison with the costs of the Big Mac in both countries (information as of 2005).”

The Starbucks Latte index is here: [money.cnn.com/2004/01/16/news/funny/latteindex/]

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