UNIVERSITY OF KELANIYA – SRI LANKA

Faculty of Commerce and Management Studies

Postgraduate Diploma in Human Resource Management Leading to Master
of Human Resource Management
July - 2017
2015/ 2016 Academic Year
Year 01 - Second Semester Examination

PHRM 52093 -Economic Aspect of Human Behavior

No. of Questions: 08 Time: 03

Hours

Answer only five questions (05) out of eight (08).

Question No 01

“In the following graph, at point ‘b’, the slope of the indifference curve and
the slope of the budget line are equal. Accordingly, point “b” shows the
optimal choice between leisure (H) and income (W) of a worker”.

I1

W b

a) Do you agree with the shapes of the above curves and the above
statement? Justify your answer with an appropriate graph.

1
 (06 Marks)

b) Explain non- participant behaviours in the labour market with relevant

graphs.

(14 Marks)

(Total 20 Marks)

Question No 02

a) Explain the following shapes of individual labour supply curves by

tracing appropriate graphs.

I. Positive
II. Negative, and
III. Vertical slopes of labour supply curves.
(12 Marks)

b)Gayan’s standard working hours per day are shown as HD in the following
graph. His preferred working hours are Hhg. His indifference curves are
Ig1, Ig2 and Ig3. His optimal working hours are shown at point Ug.

Ug
Ig 3

Ig Ig

D hg H

I. Identify and Explain reasons for Gayan’s choice.

(04Marks)
II. Do you believe that there is an opposite behavior of Gayan in the labour
market? Explain.
(04 Marks)

(Total 20 Marks)
2
Question No 03

a) Explain the normal shape of the individual labor supply curve.

(05Marks)

b) “Market labour supply curve sometimes slopes downward?” Do you agree

with this statement? Explain your answer.
(06 Marks)

c)‘For an employer, paying premium wages for employees is more beneficial’.

Comment on this practice.

(08 Marks)

(Total 20 Marks)

Question No. 04

a) Briefly explain the key assumptions that form a perfectly competitive

labour market.

(04 Marks)

b) Suppose that demand and supply functions of labour for a competitive

firm have been given by the rows of the following augmented matrix
respectively.

-10 1 100

40 1 400

Find the equilibrium wage and employment level of employment solving the
above matrix.

(10 Marks)

3
c) Suppose, now government interferes in the functioning of this market by
imposing a minimum wage level of Rs. 7 per unit of time. Find, how
many workers would lose their jobs? How many additional workers
would want jobs at the minimum wage? Then, what is the current rate of
unemployment?

(06Marks)
(Total 20 Marks)

Question No. 05

Assume that a production function for a firm is given by the following Cobb-
Douglas specification.

Q = 100 K0.5 L 0.5

where K represents units of capital used and is kept constant at, K = 4 level
and units of Labour (L) used changes from 0 to 8, and production (Q) is
obtained as shown by total production of labour (TPL) in the following table.

L TPL
0 0
1 200
2 283
3 346
4 400
5 447
6 490
7 529
8 565

Further suppose that the price of a unit of the good sold in the final /
commodity market is

Rs. 2;

a) Derive total revenue product of labour (TRP L), average revenue product of
labour (ARPL), and marginal revenue product of labour (MRPL) schedules.

4
 (06 Marks)

b) Show ARPL and MRPL schedules on a diagram and mark Stage-I, Stage-II
and Stage-III of production with regard to employing labour, and mark
where Law of diminishing returns operates.

(06 Marks)

c) Find labour demand when the market wages are at Rs.108 and Rs.78
respectively.

(04 Marks)

d) Estimate the point of elasticity of labour demand for the above

price change.

(03 Marks)

(Total 20 Marks)

Question No. 06

Suppose the following diagramme shows a firm’s responses to decrease in

the price of labour while keeping all other relevant variables kept constant.

5
Find:

a) By what percentage (roughly) labour price (wage) has been reduced?

(02 Marks)

b) K/L ratios before and after the change in wage levels.

(04 Marks)

c) Substitution effect, output effect and total effect of wage (price) change of
labour.

(06Marks)

d) Consider the following three Cobb-Douglas production functions, explain

what kind of returns to scale is shown by each function.

Q = 100 K0.5 L0.6

Q =100 K0.5 L0.5

6
 Q =100 K0.4 L0.5

(03 Marks)

e) Distinguish between ‘economies of scale’ and ‘economies of scope’ and

show how each of them influence labour demand.

(05 Marks)

(Total 20 Marks)

Question No 07

Write four (04) short notes on the following:

a) Human capital model

b) Factors affecting distribution of earnings.

c) Joint factor productivity

d) Two-pronged effect of technology change on labour demand.

e) Specific training

f) Income effect

(Total 20 Marks)

Question No 08

“There are many economic impacts of union.” Identify them and explain
descriptively.

(Total 20 Marks)