Question

Can you please assist me on this question below: Thank you

Consider the Big Mac index and its price differential among countries.

a. Which factors contribute the most to the price differentials and which factors are pushing toward price equilibrium?

b. Compare real estate to a Big Mac with respect to the factors you mentioned in part a. Would you expect a larger or smaller price differential in the price of real estate among countries compared with the Big Mac price differential? Why?

Answer 1

Factors pushing away:

Level of competition
Import duties
Local taxes
different commercial strategies in each country by McDonalds
Local production and delivery cost
Cost of advertising
Local demand
Different size weight and nutritional values

Factors pushing towards:

Standardization of product

Acceptance or global recognition of McDonalds

2.

There would be a large price differential in price of real estate because

Real estate not actively traded

Real estate hugely dependent on economy but Big Mac is not

Every real estate is unique

Different population density and hence local demand

Government policies