How much is a Big Mac in Korea?

Purchasing Power Parity and the Big Mac Index: South Korea’s Undervalued Burger

In the globalized economy, the Big Mac has emerged as an unconventional yet effective benchmark for comparing the purchasing power of different currencies. By examining the price of this ubiquitous fast-food item in various countries, economists gain insights into the relative value of those currencies.

The Big Mac Index: A Measure of Purchasing Power Parity

The Big Mac Index, created by The Economist magazine in 1986, measures purchasing power parity (PPP) between currencies. PPP assumes that a basket of identical goods should cost the same amount in different countries, regardless of exchange rates. The Big Mac, with its standardized ingredients and global presence, serves as an ideal representative for this basket.

South Korea’s Undervalued Big Mac

According to the Big Mac Index, a Big Mac costs $4.11 in South Korea, significantly lower than the PPP-adjusted price of $5.67. This represents a substantial undervaluation of 27.81%. In other words, the South Korean won is underpriced relative to its purchasing power.

Implications of the Undervaluation

The undervaluation of the South Korean won has several implications. First, it suggests that South Korean consumers have a lower cost of living compared to their counterparts in other developed countries. Second, it makes South Korean exports relatively cheaper, potentially boosting the country’s economy. Third, it may make travel to South Korea more affordable for foreign visitors.

Causes of the Undervaluation

Economists attribute the undervaluation of the South Korean won to several factors, including:

• Government intervention: The South Korean government has historically intervened in the foreign exchange market to keep the won undervalued in order to promote exports.
• Economic growth: South Korea’s rapid economic growth has led to an increase in the demand for its currency, which has put upward pressure on its value.
• Currency manipulation: Some economists believe that other countries may have manipulated their currencies to keep their own exports competitive, indirectly undervaluing the South Korean won.

Conclusions

The Big Mac Index reveals that South Korea’s Big Mac is significantly undervalued compared to its purchasing power parity. This undervaluation provides South Korean consumers with a lower cost of living, boosts the country’s exports, and makes travel to South Korea more affordable. However, it is important to note that the Big Mac Index is only an approximation of PPP and may not accurately reflect the overall purchasing power of all goods and services.