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The "Big Mac Theory of Exchange Rates" Tests the Accuracy

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The "Big Mac Theory of Exchange Rates" tests the accuracy of the purchasing power parity theory.In July 2011,the Economist reported that the average price of a Big Mac in the United States was $4.07.In Mexico,the average price of a Big Mac at that time was 32 pesos.If the exchange rate between the dollar and the peso was 13.60 pesos per dollar,explain how it would be profitable to buy Big Macs in Mexico instead of in the United States.


Definitions:

Line-Angle Formula

A simplified diagrammatic method of representing organic molecules, where lines represent bonds and the ends of lines or vertices represent carbon atoms, with heteroatoms (non-carbon atoms) usually labeled.

Compound

A compound consisting of two or more elements that are chemically united in a constant ratio.

Line-Angle Formula

A simplified representation of organic molecules where lines represent bonds between atoms, and atom junctions or the ends of lines represent carbon atoms.

Skeletal Structure

A simplified organic chemistry diagram showing the bonding arrangement of atoms within a molecule without depicting hydrogen atoms.

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