X-Nico

4 unusual facts about Penn effect


Penn effect

New York for one dollar as in Tokyo for 360 Yen, the pegged nominal exchange rate at the time.

Of course, someone can only eat out locally, so regional price differentials can persist; the Oslo and Cairo branches are not in competition.

If a McDonalds patron in Oslo were able to eat in an identical Cairo restaurant at one quarter the price they would do so, and price competition would then equalize the Big Mac price throughout the world.

Tradability

Less than perfectly tradable goods subject to distortions such as the Penn effect, for example, a lowering of prices in less wealthy place.



see also