When a professor announces to the class that she will grade on a curve and that no one in the class will receive a grade lower than a "C"
A)a moral hazard problem for her students will likely arise.
B)an adverse selection problem for her students will likely arise.
C)the marginal social benefit will exceed the marginal social cost.
D)the marginal social cost will exceed the marginal social benefit.

Question

Quizplus · Accepted Answer

Grading on a curve with a guaranteed minimum grade reduces the incentive for students to work hard, as they might rely on the curve to pass. This creates a moral hazard problem where students' behavior changes due to the altered risk (guaranteed minimum grade), potentially leading to less effort and lower overall performance.

When a Professor Announces to the Class That She Will