The Joy of Economics:  Making Sense out of Life
 Robert J. Stonebraker, Winthrop University
 

   Grades:  Too High or Too Low?

            I met my goal; I didn't cry when I saw the test.

                                    ....anonymous student commenting on an economics exam

            Final exam week is traumatic for professors, too.  Confronted by the sins of their semester, students storm our offices seeking pardon and absolution.  We are beset with pleas for mercy, with tales of anguish and affliction (not to mention dead grandmothers).  While some faculty members are more benevolent than others, those of us in economics typically are judged to be an unforgiving lot with brutal exams, unreasonable standards and demonic grading scales.

            It is all true.  We economists deserve our villainous reputation.  We dish out some of the lowest grades of any departments.  For example, in a recent semester at my former university, economists awarded 30 percent more D and F grades in introductory courses than did other social science departments. 

Economics is tough

            My colleagues were not unique.  Relative grade distributions are surprisingly similar across colleges and universities.  A survey of nine prestigious schools found that certain departments (economics, math and chemistry) consistently awarded lower‑than‑average grades, while others (art, English, philosophy, political science, and psychology) bestowed higher‑than‑average grades.¹  The same patterns occur at my own university.

            Why?  Low grades might make sense if students in a department were especially dense.  But no one believes the typical economics or math or chemistry student is less able than one in art or English or political science.  If anything, "low‑grading" departments attract brighter students than do "high‑grading" departments.

            It is tempting to blame the lower grades in economics, math and chemistry on their inherent difficulty.  If it is tougher to learn some fields than others, the grades should be lower.  But this begs a deeper question -- why is it tougher.  Is economics more difficult than political science because of inherent differences in the disciplines, or because we choose to make it more difficult?  What if I choose to cover less material in less depth?  What if I choose to show videos in every other class instead of filling the chalkboard with graphs and equations?  What if I choose to construct simpler exams or adopt more lenient grading curves?  What we expect students to master is largely a matter of professional choice.  We could make economics and math and chemistry less difficult (or art, English, etc. more difficult).  The real question is why some professions choose to make their disciplines more demanding than others. 

            Is it genetic malevolence?  Probably not.  It is more likely the result of simple supply and demand.  In free markets, prices rise and fall as necessary to keep the quantities supplied and demanded in balance.  Increases in demand drive prices up and decreases in demand drive them down.  Suppose Kandinsky paintings suddenly become more fashionable.²  The ensuing consumer scramble will drive up the price of his available works.  The price will keep rising until it becomes high enough to choke off the excess demand.

            Alas, markets for college courses do not work so well.  Colleges and universities use very unimaginative price systems; departments are not free to raise and lower course prices at will.  With few exceptions, a three-credit course in economics or math is priced the same as a three‑credit course in English or psychology.  These uniform prices might make sense if demands were also uniform, but they are not.  Students often prefer courses and curricula that lead to high‑paying jobs.  Where starting salaries are high, the demands for courses are also high. 

            Suppose departments were allowed to charge prices that reflected the demand for their courses.  Because of strong demand, the free-market prices for courses in high‑salary fields like economics would be driven up.  The demand for courses in low-salary fields like English would be lower, and these departments would cut prices to entice students into signing up.  However, when colleges and universities impose uniform across-the-board prices for all courses, price adjustments cannot occur.  As illustrated below, the uniform price is likely to be below the equilibrium in high-salary fields and above the equilibrium in low-salary fields.  This creates excess demands in high-salary fields and excess supplies in low-salary fields.

Non‑Price Rationing

            When prices cannot rise to ration out excess demand in a market, non‑price rationing devices typically emerge.  For example, when local governments enact rent controls, apartment owners often cut maintenance to reduce costs.  Unable to increase rents, landlords cut quality instead to protect their profits.  However, college professors cannot do that.  If they cut course quality to ration out excess students, they jeopardize their chances for tenure and promotion.  But professors have another option: low grades.  By raising standards and lowering grades, professors in high‑salary fields can wipe out the excess student demand.  Similarly, if professors in low‑demand disciplines cut standards and raise grades, they can increase their number of students and fill otherwise empty seats.  If the hypothesis is correct, professors in fields leading to high‑paying jobs should award low grades and vice versa.³

            That is precisely what we find.  Table I lists average job offers from the Fall 2003 Salary Survey conducted by The National Association of Colleges and Employers.  The low‑grade departments identified are the same ones with the highest starting salaries and vice versa. 

            Unable to raise or lower explicit monetary prices, departments use grades to adjust implicit prices instead.  High‑salary departments apparently use low grades to drive excess students out while low‑salary departments use high grades to raise demand and lure students in.  If colleges and universities scrapped uniform fees and let prices equate quantities supplied and demanded, grade differentials might disappear.  Food for thought.

Table I

Low‑Grade Departments:

Chemistry:                                                        $38,793

Economics (includes Finance/Banking):             $40,084

Math/Statistics:                                                 $41,723

High‑Grade Departments:

Art:                                                                  $28,234

English:                                                             $30,157

Philosophy:                                                       $28,032

Political Science:                                               $31,760

Psychology:                                                      $27,454

            Of course, salaries are not the only factors that might affect course demands and, in turn, grading standards.  Whether or not a course is required can have the same effect.  For example, if all students in a university are required to take History 101, the demand for that course will remain strong, regardless of what salaries history majors might expect to earn.  All else equal, we should expect that grade distributions in required courses will be lower than those in electives.

Masking comparative advantage    

            The system is not efficient.  First, if salaries are higher in economics and math than in English and art, it must be because society values training additional students in these disciplines more highly.  If so, we should channel more, not fewer, students into these fields.  Yet the lower grades economics and math discourage such shifts. Students respond to grades.  Those earning A grades in introductory courses often schedule additional courses; those getting D and F grades do not. 

            Second, we want students to study the fields in which their relative abilities are strongest, fields in which they have a comparative advantage.  A young woman who learns mathematics more efficiently than English, should major in math.  Ideally her relatively abilities in math would generate higher grades which, in turn, would signal her to study more math.  But if some departments are "tougher" than others, these signals become distorted.  For example, suppose math professors set higher standards than do English professors.  Suppose, as a result, her near-the-top-of-the-class performance in math garners only a B while her more mediocre performance in English is enough for an A.  Confronted with a B in math and an A in English, she might mistakenly assume that her comparative advantage is in English and schedule additional courses accordingly.  Even if she knew the grades were inaccurate signals, she might succumb to the lure of the "easy A" and pursue English rather than math.⁴

            How do we fix this?  Should we push math grades up or pull English grades down?  Unfortunately, as average grades rise, the dispersion of grades tightens.  And dispersion is what we need to signal the relative or comparative advantage of individual students.  Suppose we assign everyone in the top half of our classes an A, and assign everyone else a B.  Many good students will get straight A grades and weaker students straight B grades.  But a student report card with only A's, or one with only B's, will give no indication of where their comparative performance was best. If we want to guide students to the disciplines in which their relative productivity is highest, a low-grade regime might make more sense.  Grades indicate comparative advantage more accurately in a world of low‑grade departments than in one of high‑grade departments.

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Notes:

1.         Sabot, Richard and Wakeman-Linn,John, "Grade Inflation and Course Choice," Journal of Economic Perspectives, volume 5, number 1, Winter 1991, p. 159 (12).

2.         Wassily Kandinsky, a Russian living from 1866 to 1944, generally is credited as being among the foremost artists of the twentieth century.

3.         Economist George Chressanthis first developed this argument in correspondence to the author.

4.         Sabot and Wakeman-Linn (op. cit.) estimate that the Department of Mathematics at Williams College could generate an 80 percent increase in the number of students taking at least one additional math course if it used the same grading scale as the Department of English.

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Testing Yourself

To test your understanding of the major concepts in this reading, try answering the following:

1.         Can you identify academic departments that typically award lower-than-average grades?  Higher-than-average grades?

2.         How might grading standards be related to salaries?  Illustrate with demand and supply curves and explain.

3.         Explain how different grading standards across disciplines can lead to inefficient student choices.

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