On a more serious note

Posted: March 20, 2012 in Thoughts
Tags: , , ,

“Because it’s not only about the meat…”

Being a third-year economics undergraduate, I recently had to choose a subject for my BA’s thesis. Of course, I did my best to link Economics with Hamburgers in order to make that thesis sound a little bit more interesting.
So here we go: Burgernomics

Burgernomics is the art of using The Big Mac in order to analyze exchange rate variations in globalized economies. We assume that, if two countries are trading between each-others, the Purchasing Power Parity between these two countries will necessarily hold. That means  that both consumers of the two countries will be able to buy the same basket of good in their respective currencies. In a more rigourous way, we would write:

Exchange Rate = P*/P

P and P* being the price index in the national and foreign econmy. Now when does the Big Mac appears in the equation? Well, I believe Economists are lazy and they don’t want to bother calculate a basket of goods that is  compatible with all economies and that will give a global idea of what are the price levels in each economy…that would take ages, so, in 1986, The Economist had one fucking brilliant idea: let’s use the Big Mac.

Indeed, the Big Mac is sold in more than 120 Countries today, and I only counted the countries in which Mcdonald’s use the exact same recipe for making the Burger. Moreover, all of the ingredients that makes The Big Mac (Bread, Sesame seeds, Meat, Cheddar Cheese, Tomatoes, Lettuce, Pickles) are produced and traded in most of these countries.

Why would you need a stupid basket of goods when you have the Big Mac?

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