Some sellers don't know what's what. That EB part appears to be a brake light outage switch & the wire colors are the same as in the wiring diagram. The switch warns you by flashing to let you know that the brake light isn't working. You can test it by removing the brake light / tail light bulb.
You'll need to check the LH handlebar control switch. There could be corrosion or something broken inside there. From the wiring diagram at the KZ400.com site there is a blue wire from the headlight fuse to the LH handlebar control. The handlebar control has a connector, so you could check for power there. Either unplug the connector & check the blue wire terminal for power or back-probe where the blue wire goes into the connector >> there should be power (Ignition switch ON). If no power, the problem is with the blue wire >> somewhere between the fuse & connector. If you have power at the blue wire terminal, then with connector plugged in, back-probe the red-black wire (low beam I think) & red-yellow (high beam)(Ignition switch ON). I would go ahead & open up the handlebar control to take a look.
1981 KZ650-CSR. Competition, Sports & Road.