The Big Mac Index Uses the Price of a Big

question 17

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 is a partial explanation for why the PPP theory does not apply to the Big Mac Index?

• A)Wages do not differ across countries
• B)Trade barriers, such as tariffs and quotas on beef, may distort local prices
• C)Taxes do not distort local prices
• D)Rent does not vary substantially across countries
• E)The Big Mac is traded internationally

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Definitions:

Mark-up

A rephrased definition: The amount by which the selling price of an item exceeds its cost price, expressed as a percentage of the cost.

Markdown

A reduction from the original or retail price of a good or service to increase its attractiveness to buyers.

Operating Expenses

Expenses related to the routine functioning of a company, not including the expenses of products sold.

Operating Profit

Profit earned from a firm's core business operations, excluding deductions of interest and tax.