Economics Project

Economists hasten established an informal method for gauging the purchasing power parity (PPP) between two foreign currencies termed as the greathearted Mac Index. The name taken by the index, Big Mac, was derived from the hamburger sold at the McDonalds restaurants that are almost in over 120 countries. Pan Woodall an economist is the unrivaled who introduced the Big Mac Index in September 1986. Economists spend a penny argued that the Big Mac index has proved to be a more accurate financial earmark to contain ever been based on fare items.A fair bench mark value is the exchange rate that ensures burgers in another(prenominal) parts of the world cost the same as those in the US (Wankel, 2009). A recent research showed Asia to be the cheapest place for cardinal to enjoy a burger. How to arbitrage among burgers in the USA and Britain To arbitrage among burgers in the US and Britain the sellers should consider some of the following factors Transport costs, costs in transport are very important as far as the transportation of inputs and outputs is concerned. The costs of access of the premises by customers are excessively a must consideration in setting up a business.The location that seems to be cheaper and brings soaring returns to the investor should and so have the upper hand. The other factor to consider is trade restrictions put in place by various governments. While differences in transport costs can submit room for arbitrageurs to make good profits, trade restrictions completely wipes off such(prenominal) opportunities. In relation to tariffs, taxes in countries hinder business opportunities in incompatible governments. To arbitrage one should consider a country that does not have high tax rates. Effects of many muckle arbitragingThe issue of arbitrage serves a very important function in listed option markets. arbitrage provides an option in secondary markets where he can not be able to exit if need does not occur. Most markets are laid by the transportation costs, their physical sizes, and physical features that act as barriers. that with all these barriers, people are still willing to arbitrage. When many people are arbitraging, the market created leads to the attraction of demand (Wankel, 2009). Without them, the net buyers attracted will visit and be short-lived.With the presence of heavy arbitrageurs in a place, price is affected. This is collect(p) to the essence of high supply that results to a negative effect on the prices. This results to an inordinate in stock selling. Reasons for price differentials in Big Macs The differences in prices in Big Macs may be due to various reasons. some(prenominal) of them include culture of the people where the restaurants are located, tastes and preferences, price of other connect products and . the culture dictates what people should and should not consume.If prices of other products are lower then the demand of Big Mac will be affected negatively. This greatly dic tates the price of Big Mac. The cost of producing Big Mac in different place also dictates the price. Taxes charged in countries of operations also have impacts on price. If taxes charged are high in one region, the prices fill up as investors try to compensate for these high taxes by charging high taxes. The argument in paragraph two is valid as an enlarge in imports often affects prices in the importing country negatively.The country spends a lot in terms of importing than it receives from exports. In the third paragraph, it is accredited that trade in third world countries is poorly organized due to this the economy is so poor. The countries often spend a lot in importing finished goods than it exports. Though the countries are rich in resources some(prenominal) raw and minerals, the countries can not deal out them effectively. Instead foreign states manage them and most returns end up benefiting foreign countries than the mother countries. Reference Wankel, C. (2009). cyclo pedia of Business in Todays World, Volume 1. New York Sage.