For instance, if you wish to hire an online personal assistant, then you can save money by hiring someone from Eastern Europe since their wage requirements will be lower than someone from the US.
Geoarbitrage is based on the same concept as arbitrage, but it focuses on the disparities in labor costs between countries, noting how exploiting these disparities will deliver a greater return on your time. Our regular readers might be familiar with the concept of geoarbitrage, a topic Andrew has written extensively on. This follows from the assumption upon which the law of one price is based – any variations in pricing that exist between two separate locations will inevitably be eradicated once enough participants in the market begin to exploit arbitrage opportunities that exist. In theory, however, even when prices are not currently the same across borders, over time they should move towards the same price. Therefore, it seems that this may generally be true for commodities such as gold, but it doesn’t always apply to other goods. However, I also know that a pint of beer in Geneva is going to cost me way more than a beer in Warsaw. This seems pretty straightforward since you would expect to pay the same amount for an ounce of gold in Australia as you would in Zambia.
Cost of a big mac in nyc free#
The Big Mac Index is an example of how we measure the law of one price, which states that in the absence of any transport costs and trade tariffs and if free competition and price flexibility are present, then identical goods will cost the same price regardless of where you purchase them (once converted into a common currency).
Cost of a big mac in nyc how to#
How to Use the Big Mac Index to Guide your InvestmentsĪt its most basic, the Big Mac Index is a way to gauge a currency’s over- or undervaluation using the Law of One Price, Purchase Power Parity, and the cost of the iconic Big Mac.
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