The Big Mac Index

One way to get your head around relative currency valuations is to look at what the same goods cost in New York, London, Tokyo, Beijing and elsewhere on the globe. So back in 1986, the Economist magazine created the now-famous "Big Mac Index," a tongue-in-cheek but surprisingly useful way of measuring purchasing power parity, or PPP. It became so popular that academics have written PhD dissertations on it, and it is cited in several introductory economics textbooks as well.

By comparing the cost of Big Macs — an identical item sold in about 120 countries — the Big Mac Index gives you an insight into the relative over- and undervaluation of the world's currencies compared to the U.S. dollar. It does so by calculating the exchange rate (the Big Mac PPP) that would result in Big Macs costing the same in the United States as they do in a particular foreign country.

Your assignment:

Given the following

Country	Price of Big Mac	Exchange Rate:$	Big Mac/Exchange	Over/Undervalued
USA	$4.79	$1 = $1	$4.79/1 = $4.79	Equal
Great Britain	2.89 GBP	$1 = .66 GBP	2.89/.66 =$4.37	Undervalued

First define Purchasing Power Parity. For 2 of the remaining rows, select one of the 120 countries that sell Big Macs and determine if their currencies are overvalued or undervalued versus the U.S. dollar. Be sure to fill in the rest of the row entries for your countries.Do not select a country that has already been taken by one of your classmates. Why are your currencies appreciating or depreciating versus the dollar?
Since we are running out of countries, 6th period will look up the price of the KFC 2 piece value meal, $5.99 in the USA.

Planet Money’s t-shirt, comparative advantage and protectionism. A lesson in International Trade

ntroduction: The purpose of this activity is to reflect on the principle of comparative advantage and better understand how the patterns of global trade are shaped by this fundamental concept. You will watch and read the story of a t-shirt that was manufactured using resources from four separate countries. Next, you will respond to an essay prompt.
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Steps:

1. Read the page that tells the backstory to the Planet Money t-shirt project.
2. Watch the five part documentary 
3. Read the stories behind the t-shirt’s different stages of production:

• Cotton
• Machines
• People
• Boxes

Essay prompt:

A comparative advantage exists when a particular task can be done or a good can be produced at a lower opportunity cost by one nation than by a potential trading partner. When countries specialize in the goods for which they have a comparative advantage, the allocation of resources (land, labor and capital) between nations is more efficient, allowing for a greater level of overall production and income than what is possible without trade.

Carefully explain how the the story of the production of the Planet Money t-shirt demonstrates the principle of comparative advantage.