Grading Policies in the Classroom

One of the most basic principles of economics is that people respond to incentives. Consider the following situation: Suppose there are two classes made up of very similar students and students can choose which class they sign up for. In one class, each student receives the grade made on each test. In the other class, each student receives the class average as his or her grade. These policies are known by all. In what class would you expect the higher average grade? Explain your answer in terms of the economic concepts you read about in Chapter 20.