Final answer:
The grading system that compares a student's performance with the performance of peers is known as norm-referenced grading, differing from criterion-referenced grading which measures against fixed criteria. The method has ties to competitive systems and faces challenges like grade inflation, where the value of grades increases over time.
Step-by-step explanation:
The grading system based on the comparison of a student's performance with that of other students is known as norm-referenced grading. This is contrasted with criterion-referenced grading, where students are evaluated against a fixed set of criteria or learning standards. Norm-referenced grading often uses percentile rankings or a grading curve to assess student performance relative to their peers.
This grading method can be seen as analogous to principles found in competitive systems like capitalism, where individuals are measured against the performance of others. However, educational systems also face challenges, such as grade inflation, where the significance of grades can be diminished over time due to higher grades being awarded for work that would have received a lower grade in the past. This phenomenon might result in an A becoming the new average instead of the traditional C.