The Big Mac Index Uses the Price of a Big

question 138

Multiple Choice

The Big Mac Index uses the price of a Big Mac in local currencies around the world as a way of testing the purchasing power parity theory.Which of the following partially explains why the PPP theory does NOT apply to the Big Mac Index?  

• A) because wages do NOT differ across countries 
• B) because trade barriers, such as tariffs and quotas on beef, may distort local prices 
• C) because taxes do NOT distort local prices 
• D) because rent does NOT vary substantially across countries

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Definitions:

Absorption Costing

A system in accounting that compiles all the expenses tied to production, such as direct material costs, direct labor payments, and both styles of manufacturing overhead, fixed and variable, and applies them to the price of a product.

Fixed Manufacturing Overhead

Costs that do not vary with the level of production, such as rent for the manufacturing facility or salaries of permanent staff.

Common Fixed Expenses

Costs that are shared across different segments or departments of a business and do not vary with the level of production or sales.

On-Site Supervisor

An individual responsible for overseeing and managing workers or operations at a specific physical location.