Lowest-Wage State in the U.S. and Highest-Wage State: Key Differences

West Virginia vs. New York: A Comparison of Wages

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Question

Suppose the lowest-wage state in the U.S. is West Virginia and the highest-wage state is New York. Which of the following would be true?

Answers

A. If New York trades with West Virginia, wages in New York will fall until they equal the wages in West Virginia.

B. New York would be better of if its state government imposed restrictions on the importation of goods made in West Virginia.

C. Both New York and West Virginia will be better of if they are allowed to trade freely.

D. If New York trades with West Virginia, consumers in New York will be worse off. C

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Explanations

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A. B. C. D.

Explanation

Low-wage and high-wage states (like countries) are better off if they are allowed to freely trade with each other. The comparative advantage of low wage states will be in the production of labor intensive goods while the advantage for high wage states will be in the production of capital intensive goods. By specializing in the area of their comparative advantage, total production for each state will increase as will real income.

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