The Big Mac Index and What About China Case Study

The commodious mack Index and What about China - Case Study Exampletion of this theory is very simple and that states that the value of any busy good in one nation is equivalent to its value in other countries if one considers the aforesaid(prenominal) keeping in mind the concept of exchange rate of the currencies between those nations. But this is not ever the case in real time. Big Mac Index, developed based on the prices of Big Mac in the USA and many other nations has proved that in various countries, the value of their currency is overrated par to that of the USA where as in some other countries the currency is underrated in comparison to that of USA. In ill-judged run, the concept of PPP is not valid for various goods and the main reasons be presidencys those are trading those items realise to consider appeals such as transportation cost, various kind of taxes such as tubful or government tax, Non traded service, competition in the existing market, Inflation etc. A long with all these factors, organization also needs to consider cost of labour man finalizing the price of the same. If one considers the case of Big Mac, in the USA, the labour cost is $ 8 per hour where as in China the labour cost is as low as $ 1 per hours, so the final price of the Big Mac is off the beaten track(predicate) lower than that of the USA. So it is very clear that the PPP theory is not always applicable while comparing the price of various goods across the countries as there are number of others factors play an chief(prenominal) role is deciding the price.Many countries allow their currencies to bring about at a slower pace equal to that of US Dollar or Euro. During 2013, the exchange rate of RMB was at $ 0.16. From 2005 onwards, Chinese government started allowing their currency to grow in a modest rate and in following five years, that is during 2005-2010, the Yuan rose enumerate 20% in value compared to that of the US Dollar. The main reasons behind allowin g the modest growth of the currency are weaker exchange rates allows growth in the export as various countries like to purchase to a greater extent goods from