Everyone talks about the enormous cost of just about everything in Tel Aviv (and in Israel, in general). So, as an experiment, I decided to compare prices in one very specific sector — i.e. American fast food. For many years, economists loved to talk about “The McDonald’s Test”. This test was used to see whether or not the currency of a particular country was overvalued. The idea was based on the fact that McDonald’s used the same basic agreements and sold nearly identical products around the globe, and as such, the price of McDonald’s products should be the same all over the world. According to this theory, the price of a meal at McDonald’s in a country, relative to the average price of the same meal worldwide, indicates whether the currency of that country is overvalued or undervalued.
I examined the prices of several menu offerings at MacDonald’s — and as a precaution, in case the findings were a function of a problem characteristic to a particular chain, I checked out the price of the signature burgers at Burger King, as well.
McDonald’s prices are widely known to be more expensive in Israel than in the United States. However, other than buying a coffee, or an occasional ice cream cone, I do not frequent either of these establishments. When I actually researched the current prices at McDonald’s and Burger King, I was more than a little surprised by the enormous gap in the price of these fast food items in Israel, compared to the identical item sold in the U.S.
Here’s what I found:
Cost of a Children’s Hamburger
In Tel Aviv .…… NIS 27 … ($7.50)
In New York …. NIS 8.96 .. ($2.49)
Cost of a Big Mac Value Meal
In Tel Aviv …… NIS 57 … ($15.83)
In New York …. NIS 21.. ($5.99)
Cost of a Whopper
In Tel Aviv …….NIS 43 .…… ($11.94)
In New York … NIS 23.36 … ($6.49)
Cost of a Double Whopper
In Tel Aviv …….NIS 57 .…… ($15.83)
In New York … NIS 17.96 … 495.29)
Just to check if the price deferential was a reflection of the substantially higher price of beef in Israel, I looked at the price of chicken sandwiches at these fast food establishments.
Cost of a Chicken Sandwich
In Tel Aviv …….NIS 47 ……..….. ($13.05)
In New York … NIS NIS 17.96 … ($4.99)
As one can clearly see, the price disparity is quite substantial. The price of fast food in Tel Aviv is not just slightly higher (as could perhaps be accounted for by the greater expense of using kosher meat). However, in almost every case, the prices in Tel Aviv are almost 3 times as much as the cost of the exact same item in New York.
Is there any justification for this profound price difference? I cannot offer any explanation today, however, in the coming weeks, I will investigate this matter in greater depth.