The model was primarily designed to describe participants’ misperceptions regarding CGPA and how it affects the amount of CP supplied by them.
This model explains the upward sloping short run aggregate Class Participation (CP) curve by focusing on the Participant market. This model assumes that grades adjust fully and quickly to balance the supply and demand for CP. Its key assumption is the unexpected movement in the CGPA levels influence CP supply because participants temporarily confuse real and nominal grades.
The equation for the CP supply curve states that the quantity of CP supplied depends on the real grades that participants expect to get. Participants know their nominal grades, but they do not know their overall CGPA.
When deciding how much CP to give, they consider the expected real grade, which equals the nominal grade divided by their expectations of the CGPA.
The quantity of CP supplied therefore depends on the real grade and on the participants’ misconception about CGPA.
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