Your economics professor has announced that he or she will assign final grades as follows: the top 20 percent of students will get an A, the bottom 20 percent of students will get an F, and everyone else will get a C. This grading scheme generates a positional externality because:
A)society as whole will be better off when people are educated.
B)students will study hard no matter how the professor assigns final grades.
C)each student's final grade depends on his or her relative standing.
D)studying requires both time and effort.

Question

Quizplus · Accepted Answer

The grading scheme generates a positional externality because each student's final grade depends on his or her relative standing. This means that students may become more focused on beating each other rather than focusing on their own learning, which can cause unnecessary stress and competition.

Your Economics Professor Has Announced That He or She Will