International Trade/Finance Go to http://www.economist.com/content/big-mac-index
ID: 1216337 • Letter: I
Question
International Trade/FinanceGo to http://www.economist.com/content/big-mac-index/. Why does the price of a Big Mac, in dollars calculated using market exchange rates, tend to rise with per capita income? International Trade/Finance
Go to http://www.economist.com/content/big-mac-index/. Why does the price of a Big Mac, in dollars calculated using market exchange rates, tend to rise with per capita income? International Trade/Finance
Go to http://www.economist.com/content/big-mac-index/. Why does the price of a Big Mac, in dollars calculated using market exchange rates, tend to rise with per capita income?
Explanation / Answer
Per capital income = GDP of a country ÷ Population of that country
Poor countries have lower per capita income and lower the price of company’s product compare to richer country. It happens because of lower labor cost. Moreover, higher per capita income indicates better affordability. Therefore, the price of the company’s product tends to rise with per capita income.
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