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In the News

A Prime Example of Price Elasticity of Demand

Jim Riley

26th July 2022

What will happen to the quantity demanded of Amazon Prime subscriptions in the UK after Amazon announced an increase in price?

As the BBC report today, from September 2022, monthly subscriptions to Amazon Prime will increase by £1 to £8.99. The price for an annual membership will go up from £79 to £95.

Fancy a couple of quick business calculations?

What is the percentage change in price of the monthly and annual subscription to Amazon Prime?

Spoiler alert - the answers are further below.

So what will happen to quantity demanded?

Almost certainly demand will fall. But surely by nowhere near as much as the increase in price.

Which makes Amazon Prime subscriptions price inelastic.

Why inelastic? There's a strong clue in the article, which quotes a retail analyst explaining why the increase in subscription price should result in an overall increase in revenue from subscriptions.

"Amazon is indispensable to many shoppers and they [the company] know that," she told the BBC.

"Amazon has become so deeply embedded in our daily lives that so many people will accept the hike."

Be honest. Can you do without it?

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Percentage changes in price:

Monthly subscription: (Change £1 / Original £7.99) x100 = 12.5%

Annual subscription: (Change £16 / Original £79) x 100 = 20.2%

Jim Riley

Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known Business writer and presenter as well as being one of the UK's leading educational technology entrepreneurs.

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