MIDTERM (30%)

SEMESTER 1 SESSION 2021/2022

NOVEMBER 2021
TIME: 3 HOURS

STUDENTNAME MATRICNo.
KULTUM BINTI DEMIE BB20110862

FACULTY : FACULTY OF BUSINESS, ECONOMICS AND

ACCOUNTANCY
COURSE CODE : BH20103
COURSE TITLE : HUMAN RESOURCE ECONOMICS
INSTRUCTIONS : ANSWER ALL QUESTIONS

Thispapercontains7printedpages,includingthi
spage.

1
 PART A (40%)
INSTRUCTION: THIS SECTION CONSISTS OF 20 QUESTIONS. ANSWER ALL
QUESTIONS.

1. The concept of demand must be modified when applied to labor markets to

reflect the fact that:
A. non-monetary characteristics of jobs may be as important to workers
as their pay
B. labor demand curves slope upward from left to right
C. demand for labor is derived from the demand for the various
products that labor produces
D. the demand for output is derived from the demand for labor used to
produce that output

2. In the context of the basic work-leisure model, “work” is defined as:

A. time devoted to a paying job or household work
B. time devoted to a paying job
C. time devoted to any “undesirable” activity
D. all time not devoted to rest and relaxation

3. In the context of the basic work-leisure model, “leisure” time includes:

A. only time devoted to rest and relaxation
B. any time not devoted to either a paying job or household work
C. any time devoted to anything desirable
D. any time not devoted to a paying job

4. The slope of an indifference curve at any point reflects the:

A. rate at which a person is willing to substitute leisure for income
B. wage rate
C. income effect
D. substitution effect

5. The convex shape of a standard indifference curve reflects:

A. a diminishing marginal rate of substitution of leisure for income
B. an increasing marginal rate of substitution of leisure for income
C. a constant marginal rate of substitution of leisure for income
D. the wage rate
Questions 6 – 8 refer to the following diagram representing Larry’s budget constraint
and preferences:

6. Consider the three combinations of leisure and income represented by points

A, B, and C. Which of the following is a correct statement?
A. Larry prefers A to B
B. Larry prefers B to C
C. Larry prefers A to C
D. Larry prefers C to A

7. Which of the following is a correct statement?

A. At A, Larry’s marginal valuation of leisure is higher than the market
wage
B. At B, Larry’s marginal valuation of leisure is higher than the market
wage
C. At C, Larry’s marginal valuation of leisure is lower than the market
wage
D. At B, Larry values leisure the same amount as at A

8. At point A, Larry’s marginal rate of substitution of leisure for income:

A. exceeds the wage and Larry would like to work more hours
B. exceeds the wage and Larry would like to work fewer hours
C. is less than the wage and Larry would like to work more hours
D. is less than the wage and Larry would like to work fewer hours

9. The higher the individual’s wage rate:

A. the steeper the budget constraint
B. the lower the marginal rate of substitution of leisure for income
C. the greater the desired number of hours of work
D. the greater the desired number of hours of leisure
Questions 10 – 12 are based on the following diagram, which shows a labor supply
curve for an individual.

10. If the wage rises from W1 to W2 we may conclude that:

A. the income effect is stronger than the substitution effect
B. the income effect and substitution effects are equal
C. the substitution effect is stronger than the income effect
D. labor supply is perfectly inelastic

11. If this person were now willing to supply only H1 hours of work at W3, we
could conclude that:
A. labor supply increased (the curve shifted to the right)
B. labor supply decreased (the curve shifted to the left)
C. the person’s preferences must have changed
D. the substitution and income effects are now equal

12. Of the following, which one would most likely cause this person to supply H1
hours of work at W3 rather than the current H3 hours?
A. This person’s spouse receives a substantial income increase
B. A decrease in this person’s marginal valuation of leisure time
C. Congress abolishes an income maintenance program
D. This person’s spouse suffers a substantial cut in income

13. Compared to basic work-leisure choice model, Becker’s model of time

allocation:
A. considers the week rather than the day as the basic unit of time
 B. considers the household rather than the individual as the basic
decision-making unit
C. assumes that goods and services take no time to consume
D. considers time spent in household work as work time rather than
leisure time

14. Given the following data, what is the labor force participation
rate? Population 300 million
Non-institutionalized population, age 16 and over 250 million
Persons employed or seeking employment 200 million
Unemployed persons 10 million
A. 10%
B. 75%
C. 80%
D. 84%

15. Human capital investment consists of:

A. any activity that enhances the quality of labor
B. expenditures for formal schooling only
C. expenditures for on-the-job training only
D. any activity that leads to the substitution of physical capital for labor

16. The primary indirect cost of going to college is:

A. earnings given up by not entering the labor market directly after high
school
B. an enhanced future flow of earnings
C. the value of room and board that would have been provided at home
D. tuition expenses

17. Consider an individual who will invest a total of $10,000 in direct and indirect
costs for training in order to increase earnings by $12,500 for the next year.
Suppose the interest rate is 8%. If this person plans to retire the following
year, the net present value of this investment is closest to:
A. Zero
B. $2500
C. $1600
D. $11,600

Questions 18 and 19 refer to the following diagram, in which MRPu refers to the
marginal revenue product of an untrained worker, while MRPt refers to this worker’s
marginal revenue product as a result of a program of on-the-job training.

18. In the case of general training, the wage rate during the training period will
be , while the post-training wage will be .
A. W1; W3
B. W1; between W2 and W3
C. W2; between W2 and W3
D. W2; W2

19. In the case of specific training, the wage rate during the training period will
be , while the post-training wage will be .
A. W1; W3
B. W1; between W2 and W3
C. W2; between W2 and W3
D. W2; W2

20. Charley’s employer is considering him for a general training program that will
cost $3 per hour. His current marginal revenue product is $15 per hour and
will rise to $20 upon completion of the program. Of the following, Charley’s
training and post-training wage, respectively, will most likely be:
A. $15; $20
B. $12; $15
C. $15; $17
D. $12; $20
PART B (60%)
THIS PART CONSISTS OF 3 QUESTIONS. ANSWER ANY TWO (2) QUESTIONS.
Question 1
Work- leisure model is a basic model that explain the decision of workers to work or
leisure to maximize their utilities.
(a) Explain the assumption of work-leisure model.
  The assumption of work-leisure modal can be defined as individual choose
between work and leisure. Work is something a person can get earning of
money while leisure refers to unpaid activities such as rest and do house
chores
 To explain an individual’s choice between the economist use Indifference
curves to demonstrate it
 The indifference curves shows work and leisure combinations that yield
the same amount of total utility or give satisfaction to the individual.
 Indifference curves has it two prosperities. First one is negative slope. To
keep the level of utility the same, if one get more leisure, some of income
must be given up.
 Second is, Convex to origin . With low hours of leisure, individuals are
willing to give up a large amount of income to get 1 more leisure hour.
The marginal rate of substitution goes down as the indivual gives up on
income for leisure, so it is convex to the origin.
(6 Marks)

(b) Supposed that wage increases, show this effect on individual work-leisure
decision.

 The economist understanding that increased wages would sometimes lead to an

increase in hours worked, sometimes to a small rise in hours worked, and
sometimes to a decrease in hours worked

 If the wages increases, this is the application to demonstrate the result of the
income and substitution effects of a wage change.

 The bottom upward-sloping portion of the labor supply curve shows that as
wages increase over this range, the quantity of hours worked also increases.
 The middle, nearly vertical portion of the labor supply curve shows that as
wages increase over this range, the quantity of hours worked changes very
little.
 The backward-bending portion of the labor supply curve at the top shows that
as wages increase over this range, the quantity of hours worked actually
decreases.
 All three of these possibilities can be derived from how a change in wages
causes movement in the labor-leisure budget constraint, and thus different
choices by individuals.
 (14 Marks)
Question 2
The non-labour income such as unemployment benefits are paid by authorized body
to unemployed people.
Given that the, income guarantee = RM800
Benefit reduction rate = 0.3
3 Income = RM1200

I. Calculate the actual subsidy payment. (3 Marks)

S= B- Ty
S= 800 – (0.33)( 1200)
S= RM 404

II. Calculate the break even level of income. (3 Marks)

Yb= B/t
Yb= 800/ 0.33
Yb= Rm 2424.24
(b) Using a diagram, explain the effect non labour income on work-leisure decision.
(14 Marks)

 Not labour income is earning money without any job been done such as pocket
money given by parent
 Other example we can take is subsidy especially in developed country, its
provide to its unemployed citizen
 Based on the diagram above At a wage rate of $10/hour with no other income,
the optimal hours of leisure is 16 (8 hours of work) at point U1.
 If the person provided with $60 a day of non-labor income ( the subsidy), the
budget constraint has a parallel shift.
 ($ 240+ 60). The total earning is 300
 Then the optimal hours of leisure rises to 17 at point U2 .
 With an increase in non-labor income, only the income effect occurs and so
hours work must fall.
Question 3
(a) In what specific ways does Becker’s model of the allocation of time differ from
the simple work-leisure choice model? Compare the functioning of the income and
substitution effects of the two models.
(6 Marks)
(b) Discuss the effect of specific and general training on wage of
workers.
(14 Marks)