Editing Purchasing power parity (section)

====Big Mac Index====
{{Main|Big Mac Index}}
{{more citations needed section|date=October 2023}}
{{stack|[[File:Big Mac hamburger - Japan (3).jpg|thumb|[[Big Mac]] [[hamburger]]s, like this one from [[Japan]], are similar worldwide.]]}}
The [[Big Mac Index]] is a simple implementation of PPP where the basket contains a single good: a [[Big Mac]] burger from [[McDonald's Corporation|McDonald's]] restaurants.  The index was created and popularized by ''[[The Economist]]'' in 1986 as a way to teach economics and to identify over- and under-valued currencies.<ref>{{Cite news |url=https://www.economist.com/big-mac-index |title=Our Big Mac index shows how burger prices are changing |date=2023-08-03 |newspaper=The Economist |access-date=2023-10-17 |archiveurl=https://web.archive.org/web/20231016151605/https://www.economist.com/big-mac-index |archivedate=2023-10-16}}</ref>

The Big Mac has the value of being a relatively standardized consumer product that includes input costs from a wide range of sectors in the local economy, such as agricultural commodities (beef, bread, lettuce, cheese), labor (blue and white collar), advertising, rent and real estate costs, transportation, etc.

There are some problems with the Big Mac Index.  A Big Mac is perishable and not easily transported.  That means the law of one price is not likely to keep prices the same in different locations.  McDonald's restaurants are not present in every country, which limits the index's usage.  Moreover, Big Macs are not sold at every McDonald's ([[Cattle slaughter in India|notably in India]]), which limits its usage further.<ref>{{Cite news |last=Anand |first=Shefali |date=2011-08-02 |title=India Ranks Low in Big Mac Index |url=https://www.wsj.com/articles/BL-IRTB-12201# |access-date=2025-02-13 |work=Wall Street Journal |language=en-US |issn=0099-9660}}</ref>

In the white paper, "Burgernomics", the authors computed a correlation of 0.73 between the Big Mac Index's prices and prices calculated using the Penn World Tables.  This single-good index captures most, but not all, of the effects captured by more professional (and more complex) PPP measurement.<ref name=Burgernomics />

''The Economist'' uses The Big Mac Index to identify overvalued and undervalued currencies.  That is, ones where the Big Mac is expensive or cheap, when measured using current exchange rates.  The January 2019 article states that a Big Mac costs HK$20.00 in Hong Kong and US$5.58 in the United States.<ref name=":0">{{Cite news |url=https://www.economist.com/news/2019/01/10/the-big-mac-index |title=The Big Mac index |date=2019-01-10 |newspaper=The Economist |access-date=2019-07-02 |issn=0013-0613 |archiveurl=https://web.archive.org/web/20190701094922/https://www.economist.com/news/2019/01/10/the-big-mac-index |archivedate=2019-07-01 }}</ref> The implied PPP exchange rate is 3.58 HK$ per US$. The difference between this and the actual exchange rate of 7.83 suggests that the Hong Kong dollar is 54.2% undervalued.  That is, it is cheaper to convert US dollars into Hong Kong dollars and buy a Big Mac in Hong Kong than it is to buy a Big Mac directly in US dollars.{{citation needed|date=October 2023}}