The Big Mac Index is an informal way of measuring the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries.
The Big Mac PPP exchange rate between two countries is obtained by dividing the price of a Big Mac in one country (in its currency) by the price of a Big Mac in another country (in its currency). This value is then compared with the actual exchange rate; if it is lower, then the first currency is under-valued (according to PPP theory) compared with the second, and conversely, if it is higher, then the first currency is over-valued.
For example, suppose the price of a Big Mac is $2.50 in the United States and £2.00 in the United Kingdom; thus, the PPP rate is £2.00/$2.50 = 0.80 pounds/dollar. If, in fact, £0.50 buys $1 (or £1 buys $2.00), then the dollar is under-valued by £0.30 (£0.80 - £0.50), or 38% (£0.30/£0.80) in comparison with the price of the Big Mac in both countries.
Five most expensive Big Macs
1. Iceland - USD 7.45
2. Norway - USD 6.63
3. Reunion Island - USD 6.23
4. Sweden - USD 5.33
5. Switzerland - USD 5.05
Five most affordable Big Macs
1. India - USD 1.40
2. China - USD 1.41
3. Hong Kong - USD 1.54
4. Malaysia - USD 1.57
5. Venezuela - USD 1.58