Explaining the Big Mac Urban-Rural Price Gap in the United States

The Law of One Price (LOP) is a fundamental economic principle, yet its application in regional studies often excludes rural areas due to data limitations. We analyze price equalization across the US using Big Mac prices to address this gap. Our analysis focuses on three key questions: (i) Is there evidence of price equalization between urban and rural areas in the US over the short and long run? (ii) What factors drive urban-rural price equalization? (iii) How does inflation influence the behavior of price equalization? Our findings reveal that inflation affects the speed of urban-rural gap convergence and determines the key variables that explain the price gap.