Our textbook discusses the concept of “purchasing power parity” or “PPP” along with the “law of one price”. Both concepts can appear to be a bit esoteric and difficult to grasp in a concrete way. As can be seen in the video linked below, a few decades ago, The Economist magazine began publishing a “Big Mac” index as a way of explaining PPP in more concrete terms. Do you think the index is an effective proxy for PPP? What other goods and services might be used to measure PPP? Do you see any arbitrage opportunities when considering those goods and services? Why do the prices of Big Macs vary so much from country to country?
See video below:
https://www.dw.com/en/burgernomics-what-is-the-big-mac-index/video-67335658
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