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As a food junkie, from fine dining to hawkers. From healthy food to junk food. Yes, I am a food lover. Big Mac probably one of those junk food I ate the most. Just now I order a big mac meal, that’s my second for today! Yeah, I am too lazy to move my ass down to hawker center.

Anyway, since I move to Singapore, many people and friends often asked me about living cost in Singapore. When they ask, I just tell them to compare the price of a single Big Mac between Singapore and wherever they live. May it be Jakarta, or anywhere else in the world.The price of on Big Mac in Singapore is SGD 4.25 or with the current exchange rate, USD 2.8. While a Big Mac in Jakarta, probably around IDR 20,000 or about SGD 2.7. And that goes proportionally with any kind of food or traded goods, but may differ slightly due to most of goods in Singapore are imported.

In 1986, the economist introduces the Big Mac Index. From Wikipedia, 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.Also from Wikipedia, The purchasing power parity (PPP) theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. Developed by Gustav Cassel in 1920, it is based on the law of one price: the theory states that, in an ideally efficient market, identical goods should have only one price. This purchasing power exchange rate equalizes the purchasing power of different currencies in their home countries for a given basket of goods. Using a PPP basis is arguably more useful when comparing differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of different countries, rather than just a nominal gross domestic product (GDP) comparison.

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, the big mac PPP between Singapore and Indonesia. In Singapore a big mac sold at SGD 4.25, while in Indonesia a big mac worth IDR 20,000. With the current exchange rate (using xe.com) a big mac in Singapore can be bought at IDR 31,500. This implies a PPP of 4,706, that is the price of big mac in Jakarta devided by the price of big mac in Singapore. With the current exchange rate 1 SGD = IDR 7,406 that means the SGD is overvalued by 56% to IDR, i.e. the exchange rate divided by big mac PPP.

Another use of big mac is to determine whether it is worthy or not in accepting a new job offer in another country. When accepting job sometimes money is a dilemma, now, by using big mac, it can help you decide. Simply by using your hourly rate and compare it with the price of big mac. If with the new offered salary it is faster for you to afford a big mac, then you get a better pay with a better standard of living. If it is not, then might as well as stay with the current employer.

See, there is more in a big mac than just another junk food.

Source : Wikipedia.

One Comment

  1. A Big Mac costs much more than 20K in Jakarta. I’ll find out tomorrow


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