What is the Big Mac Index And How Can it Help You Plan a Trip

What is the Big Mac Index And How Can it Help You Plan a Trip

Traveling is a pleasure, a pleasure that is enjoyed almost as much as the time it takes to organize it. But how much money do I need to make my trip a reality? This is one of the most common questions when choosing a destination with an affordable price for our pocket.

To answer this, one of the first things you have to know is the value of money in the chosen tourist destination. To do this, certain economic indices are usually used, such as the Big Mac Index, an index within the reach (and palate) of anyone.

How can a burger from a fast food chain determine a trip? Simple, determining the price of the Big Mac in different parts of the world. This comparison between the prices of some countries and others will give us an approximate idea of ​​the cost of living in that country. This can be a good reference to keep in mind on both local and international trips.

So, before organizing a trip, preparing our bags, and exchanging our currency for foreign currency, it could be very useful to find out how much a Big Mac costs in that place.

What is the origin of this index?

Big Mac is the most emblematic product of the McDonald’s fast food chain. This fast-food restaurant chain was founded in 1940 and has almost 40,000 locations distributed in more than 119 countries, being a globally recognized brand.

The popularity of the hamburger that gives its name to this index is such that it can be obtained at any McDonald’s restaurant in almost the entire world. It is one of the cultural icons of American capitalism that has managed to spread the most throughout the planet.

For this reason, the specialized magazine The Economist uses the Big Mac index as a reference for the average purchasing power of a given country. The operation consists of comparing the price of the hamburger in each country as a way of finding out whether or not the currency in that place is overvalued by another destination.

How is it calculated?

The index bases its system on the theory of purchasing power parity (PPP), which states that a dollar should buy the same amount of goods or services in all countries.

Why the Big Mac and not any other product? The reason is that it is a uniform measure since hamburgers are manufactured the same in all countries and establishments, with a fairly homogeneous physical and personnel structure. Of course, the reference figure is in US dollars to speed up the comparison with the burger from the house of origin.

To make the calculation, you must divide the price of a Big Mac hamburger in one country by the price of the same hamburger in another country. Purchasing power parity is compared to the exchange rate between those two currencies. If the exchange rate is lower, the first currency is undervalued, if the result is higher, it is overvalued. This would be the basic concept:

  • Big Mac is cheaper than in the US: currency is undervalued compared to the dollar.
  • Big Mac is more expensive than in the US: currency is overvalued against the dollar.

Most currencies are undervalued against the dollar and the Big Mac is “cheaper” converted to US dollars using the US Big Mac as a reference. A clear example of this situation is the comparison between the euro and the dollar since a Big Mac in Spain costs 25% less compared to the United States.

How to apply the index to find cheap destinations?

The Big Mac index is useful information for travelers to know where their money will be most valuable when making a currency exchange. This is an informal indicator focused on basic products.

If we take this data into account, in 2021 the most expensive burger is found in Switzerland, followed by Sweden and Norway, and in fourth place is the United States as a reference. On the other hand, at the other end of the ranking, we find South Africa, Turkey, and Lebanon. This means that, if you choose to travel to the countries at the top of the ranking, the tourist will spend more money than in the United States.

When planning an international vacation, this index is very useful for detecting the most accessible destinations. The idea is to know in advance if the goods and services in the cities chosen to visit are more expensive or cheaper compared to the place of origin.

This is one of the most effective ways to take care of the budget by reviewing these types of indexes. Of course, if you want a second burger, it wouldn’t hurt to have some extra money for unforeseen events.

Other ways to detect cheap destinations

But whatever your diet, you don’t need to buy or compare the burger in question to plan your vacation.

If we are not afraid of numbers and tables, there are certain more specific indicators to measure purchasing power and development by country.

After all, it is about determining which country you can travel to without spending a lot of money.

  • The Gini Index is used to measure income inequality between the inhabitants of a country.
  • The Human Development Index (HDI) is an indicator of the United Nations Development Program (UNDP) that measures the level of development of each country based on educational level, GDP per capita, or life expectancy, among other variables.
  • The Better Life Index is an OECD indicator and interactive tool that uses GDP, labor supply, wages, education, safety levels, and other data to establish the quality of life in each country.
  • The Gross Domestic Product (GDP) is a basic concept to understand the economic health of a country; it indicates the monetary value of the final goods and services produced by an economy in a given period.
  • The Cost of Living Index, also known as the Consumer Price Index (CPI), is regularly determined using the representative average price of the shopping basket. What is measured in this case is the general price level of that average consumption at a given time arduous previous period.

Eat,  calculate, and travel with the Big Mac

Economic concepts are usually complex and travelers need an item that is for everyday use. That is why The Economist magazine’s finding to compare the price of the Big Mac in each place on the planet is useful because it is based on a concrete and colloquial reference.

So before ordering, a Big Mac, we recommend looking at the price board. This information can be used to eat,  calculate, and travel. It is not a simple topic of conversation between friends, but a valid index to plan a dream vacation with the right and necessary budget.

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