Problem:
On average, the cost of a Big Mac in the U.S. is $4.62 (Feb 2014) If purchasing power parity holds, how much should the Big Mac cost in China if the exchange rate is $1 = 6.14?
The actual average price of a Big Mac in China is approximately 16.6 RMB.
Question: How do you explain the difference between the price implied by PPP and the actual price? Please provide step by step solution and show all work.