The Big Mac index is a price index created by The Economist to measure the purchasing power parity between two currencies, using the price of a Big Mac (from McDonald’s) as the benchmark. The newspaper chose the Big Mac burger because of the ubiquity of McDonald’s worldwide. The price of the Big Mac also derives from a culmination of local economic factors, so comparing its prices in different countries is a plausible indicator of real-world purchasing power.
The market for lemons refers to a situation where the buyers are less informed than the sellers about the quality of the goods sold. This information asymmetry deters consumers from paying a reasonable price for the goods, so sellers have no choice but to sell inferior goods at a low price. Here, the word “lemon” is a slang meaning “unpleasant” or “defective product.”
The peach market is the opposite of a lemon market. It is when the buyers and sellers have easy and equitable access to information on the products sold. This situation encourages buyers to pay a higher price for the goods and sellers to offer higher quality products. The term “peach market” denotes how the market for quality goods is pleasant, much like the delectable taste of peaches.
The latte factor refers to how people may build up their wealth by saving or investing the money they would spend on their daily cups of lattes. A W4,000 latte will total up to W1,440,000 in a year and W200,000,000 in 30 years.
The cappuccino effect occurs when the price of goods is set absurdly higher than their actual value, like a massive foam atop a cappuccino. In the real estate market, the cappuccino effect is commonplace.
A nutcracker is a machine used to crack walnuts open. In economics, the term refers to a country possessing less developed technology, lower quality goods than developed countries, and a lower competitive price than developing countries.
A cherry picker is a consumer that only picks out the best for themself. This type of consumer may only test products and services without ever buying them.
Serena Park Staff Reporter
1. What is the purpose of The Big Mac index, and why was the Big Mac chosen as the benchmark?
2. How does the market for lemons differ from the peach market in terms of information asymmetry?
3. What does the term "latte factor" refer to, and how can it contribute to building wealth?
1. In what ways can The Big Mac index provide insights into the purchasing power parity between different currencies? Do you think it's an effective measure?
2. How might the concept of the market for lemons impact consumer trust and decision-making? Can you think of real-world examples?
3. Do you believe in the effectiveness of the "latte factor" in wealth-building? How might small daily expenses add up over time?
4. Can you think of examples of the cappuccino effect in different industries? How does it impact consumer behavior?
The Big Mac index is a price index created by The Economist to measure the purchasing power parity between two currencies, using the price of a Big Mac (from McDonald’s) as the benchmark. The newspaper chose the Big Mac burger because of the ubiquity of McDonald’s worldwide. The price of the Big Mac also derives from a culmination of local economic factors, so comparing its prices in different countries is a plausible indicator of real-world purchasing power.
