Law of Value - Modification of The Law of Value in The World Market - Hamburger Example

Hamburger Example

This hypothesis about global market integration can be empirically tested by means of international price comparisons. To illustrate (this is only an approximate, simplified calculation) according to the Big Mac Index of The Economist, on July 22, 2010 the average cost of a big mac hamburger was highest ($7.38) in Norway and lowest ($1.81) in the Ukraine. Nominally, the Norwegian burger therefore costs four times the Ukrainian one, if one works with a US dollar valuation. When, however, one adjusts for purchasing power parity, the Norwegian burger is worth about $4.93 and the Ukrainian burger is worth about $5.25. In other words, Norwegians have a higher wage, but they can buy less for their money. VAT on the Norwegian burger is 14% and VAT on the Ukrainian burger is 20% so the Norwegian burger before indirect tax imposts costs $4.24 and the Ukrainian one $4.20.

Admittedly, corporate tax in Norway was at 28%, and it was 25% in the Ukraine, so one could in principle weight these results most simply by reducing the Norwegian cost by 3% to get a more accurate picture of the difference in direct production cost. To express the real disparity in value, we could then strike a ratio between $4.11 (for the Norwegian burger) and $4.20 (for the Ukrainian burger), i.e. the real differential in value between the nominally most expensive burger in the world and the nominally least expensive burger in the world, expressed in US dollars, is likely to be around 2%.

In the rest of the world, one could conclude, for the most part international value differentials for burgers are unlikely to be very much larger (in fact, the tax and social security levies involved in the total labour cost of a MacDonald's employee are proportionally somewhat higher in the Ukraine than in Norway).

Read more about this topic:  Law Of Value, Modification of The Law of Value in The World Market

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