Amazon Prime Membership

This activity is appropriate for a Principles of Microeconomics course. Prior to this activity, students should know about markets, elasticity of demand, and the relation between elasticity of demand and revenue. The instructor may start by asking students how many of them know about Amazon Prime. If students don't know, the instructor may ask other students to explain how this subscription service works within each team. The activity can last between 10-15 minutes depending on the length of the discussion. This activity can be used in both small and large classes.

Overview

After covering markets, elasticity of demand, as well as the relation between elasticity of demand and revenue, students are asked to offer advice to Amazon on whether to increase its Prime Membership Fee or to decrease it to raise revenue. This question requires students to consider the elasticity of demand of Amazon Prime.

Expected Student Learning Outcomes

In this activity, students relate the change in revenue with elasticity of demand.

In this activity, students identify factors that affect the elasticity of demand.

Information Given to Students

Your team is hired as economic consultants for Amazon. Amazon wants to raise the revenue from its Amazon Prime subscriptions. Discuss with your teammates the likely nature of the price elasticity of demand for Amazon Prime. Based on your reasoning about the price elasticity of demand for Amazon prime, what do you recommend that Amazon should do?

A) Increases the yearly subscription fee.
B) Decreases the yearly subscription fee.

Each team will have to provide an explanation for its choice.

Each team should simultaneously reveal its choice. A team representative, chosen at random, will share with the class the reasoning behind the choice. Each of the answers is plausible. However, the choice must be supported by examining the price elasticity of demand for this subscription. Each team should argue whether the subscription is elastic or inelastic. To determine this, they need to consider factors that affect the elasticity of demand (e.g. availability of substitutes, is this a necessity/luxury, etc). This activity is graded based on the argumentation behind the choice. Each team should demonstrate an understanding of the factors that affect the elasticity of demand and how the latter is related to revenue changes.

The learning outcomes can be assessed with exam questions that test the understanding of the relation between elasticity of demand and revenue. Moreover, questions about the factors that affect the elasticity of demand can also be used to assess the learning outcomes.