Beginning in 1986, The Economist has published a "Big Mac" measure of purchasing power parity that describes the U.S. dollar price of Big Mac's around the world. Read the article entitled: "For Here or to Go? Purchasing Power Parity and the Big Mac by Michael R. Pakko and Patricia S. Pollard. (Viewing this document requires the Adobe Acrobat reader plugin. If this is not loaded on your computer, a free copy may be downloaded by clicking here.)

Questions

1. Why do the authors suggest that the "Big Mac" is a good commodity to use to investigate whether purchasing power parity occurs?
2. Does the evidence from Big Mac prices suggest that purchasing power parity holds?
3. How are deviations from purchasing power parity explained?