MAASAI MARA UNIVERSITY
REGULAR UNIVERSITY EXAMINATIONS
2016/2017 ACADEMIC YEAR
FOURTH YEAR SECOND SEMESTER
SCHOOL OF BUSINESS AND ECONOMICS
BACHELOR OF ARTS IN ECONOMICS
COURSE CODE: ECO 419
COURSE TITLE: ECONOMICS OF LABOUR AND
INDUSTRY II
DATE: 15TH MAY 2017 TIME: 11:00 – 13:00HRS
INSTRUCTIONS TO CANDIDATES
Answer Question ONE and any other THREE questions
This paper consists of THREE printed pages. Please turn over.
QUESTION ONE
a) Discuss the main causes of wage differentials in Kenyan labour market. (5mks)
b) Explain the modern theory of wages under perfect competition.(5mks)
c) Suppose that the demand and supply functions for unskilled labour in a market;
Demand: LD=10-0.5w
Supply: LS=6+0.9w
Where L is millions of workers and w is the hourly rate.
i. Determine the equilibrium wage rate and the number of workers employed. (4mks)
ii. If the Kenyan government through the Ministry of Labour sets a minimum of KES 10.5 per hour. Find the wage rate and the quantity of labour employed. Compare your answer for part c(i), how many workers will lose their jobs? (8mks)
d) Discuss the advantages and disadvantages of internal labour markets. (3mks)
QUESTION TWO
a) Explain why the term derived demand is used to describe the demand for factors of production. (5mks)
b) Critically assess the argument that perfect competition is the most desirable market situation. (4mks)
c) In what ways does the heterogeneity of labour complicate an analysis of demand of labour? (3mks)
d) Explain why common property resources tend to be over exploited. (3mks)
QUESTION THREE
a) Suppose that a monopolist had some product that was acquired with zero marginal cost.
i. What price should the monopolist charge for this product? (3mks)
ii. Determine the quantity of the product that should be sold in order to maximize total revenue. (3mks)
b) Explain the role technical innovation plays in the strategy of an oligopolist. (4mks)
c) Discuss the case for the government involvement in markets. (5mks)
QUESTION FOUR
a) Distinguish between the following concepts.
i. Horizontal integration and vertical integration. (2mks)
ii. Economies of scale and economies of scope. (2mks)
iii. Nominal wages and real wages. (2mks)
b) Why does pay tend to rise with age? Is this fair to young workers?(5mks)
c) Explain principle agent theory using examples and illustrations.(4mks)
QUESTION FIVE
a) Explain the following concepts as used in labour economics; (7mks)
i. Regulation
ii. Privatization
iii. Allocative efficiency
iv. Pareto optimality
v. Asymmetric information
vi. Predatory pricing
vii. Paternalism
b) Explain the difference between the Keynesian labour market and the Friedman-Phelp labour market. (4mks)
c) If the labour demand and labour supply curves intersect above the negotiated wage (w). Explain the implications of this on the AS curve. (4mks)
