Burgernomics and Lattenomics

World Bank classifies economies on the basis of their gross national income (GNI) per capita. The globalization of economies would necessarily lead to a perfect market situation where in the long run exchange rates should move towards the same price of a basket of goods and services in different countries; that is, a dollar should buy the same basket of goods and services everywhere in the world. This is called purchasing power parity (PPP).

The Economist newspaper has derived a couple of innovative ways to measure the shift towards a more globalized world. The Big Mac Index was introduced in 1988. The Big Mac is produced in more than 120 countries. The theory of PPP will suggest that hamburgers cost the same in Asia as in other continents. Comparing actual exchange rates with PPP will thus provide an indication of whether a currency is under- or overvalued.

The newspaper subsequently introduced the Starbucks Tall Latte Index, in order to further test the theory of PPP. By coincidence, the average price of a Starbucks tall latte in the U.S. was the same as the average price of a Big Mac — USD 2.80 — in 2004. It turns out that the Tall Latte Index tells broadly the same story as the Big Mac Index for most key currencies. The indices show that the euro is about 30 percent overvalued against the dollar. This is based on the average price of EUR 2.93 — USD 3.70 — in member countries where Starbucks operates. Sterling pound is also 17 percent overvalued. Both indices show that the Swiss franc is the world’s most overvalued currency. The Canadian, Australian, and New Zealand dollars are still undervalued against the dollar despite their recent climb.

The indices, however, show mixed results when it comes to Asian currencies. The Big Mac Index says the yen is 12 percent undervalued against the dollar while the Tall Latte Index suggests that it is 13 percent overvalued. More startling is the Chinese yuan. It is 56 percent undervalued according to the Big Mac Index, but spot on its dollar PPP according to the Tall Latte Index. The differences probably reflect the different nature of competition in the markets for the two products: Starbucks coffee is pitched as a lifestyle drink and hence commands a premium, especially in Asian economies.

For more information, refer to Fundamentals of International Business: 1st Asia-Pacific edition by Michael Czinkota et al. 


32 thoughts on “Burgernomics and Lattenomics

  1. 10/17/2016 In my opinion, michaelczinkota.com does a excellent job of dealing with subjects of this kind! Even if frequently deliberately polemic, the information is generally thoughtful and thought-provoking.

  2. First off I want to say fantastic blog! I had a quick question that I’d like to ask if you don’t mind. I was curious to find out how you center yourself and clear your thoughts prior to writing. I’ve had a tough time clearing my mind in getting my ideas out there. I do take pleasure in writing however it just seems like the first 10 to 15 minutes are usually lost just trying to figure out how to begin. Any recommendations or hints? Kudos!

  3. Can I just say what a relief to locate someone who truly knows what theyre talking about on the internet. You unquestionably know how you can bring an problem to light and make it crucial. Far more individuals really need to read this and comprehend this side of the story. I cant think youre not more well-known due to the fact you unquestionably have the gift.

  4. Solid, well-researched content. I just now passed this on 10/9/2016 to a colleague who has been involved in a little research of his own on the topic. To say thank you, he just bought me dinner! So, I should probably say: Cheers for the meal!

  5. Its like you read my mind! You appear to know so much about this, like you wrote the book in it or something. I think that you can do with a few pics to drive the message home a bit, but other than that, this is great blog. An excellent read. I’ll certainly be back.

  6. Hello Web Admin, I noticed that your On-Page SEO is is missing a few factors, for one you do not use all three H tags in your post, also I notice that you are not using bold or italics properly in your SEO optimization. On-Page SEO means more now than ever since the new Google update: Panda. No longer are backlinks and simply pinging or sending out a RSS feed the key to getting Google PageRank or Alexa Rankings, You now NEED On-Page SEO. So what is good On-Page SEO?First your keyword must appear in the title.Then it must appear in the URL.You have to optimize your keyword and make sure that it has a nice keyword density of 3-5% in your article with relevant LSI (Latent Semantic Indexing). Then you should spread all H1,H2,H3 tags in your article.Your Keyword should appear in your first paragraph and in the last sentence of the page. You should have relevant usage of Bold and italics of your keyword.There should be one internal link to a page on your blog and you should have one image with an alt tag that has your keyword….wait there’s even more Now what if i told you there was a simple WordPress plugin that does all the On-Page SEO, and automatically for you? That’s right AUTOMATICALLY, just watch this 4minute video for more information at. Seo Plugin

  7. I’d been indicated this web site simply by my own cousin. I’m now not positive regardless of whether this create is definitely created through your ex because no one learn these specific somewhere around the difficulty.. PCS to Bitcoin That you are fantastic! Thanks!

  8. Это такой хороший сайт с большим количеством полезной информации . Приходите присоединиться к нашему новый бесплатный социальный сайт, как Facebook . У нас есть группы друзей , объявления, сайт знакомств играть в игры бесплатно для всех на http://mysocialspot.ca/

Leave a Reply