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EC2 pricing models (on-demand, reserved, spot) in AWS - Mini Project: Build & Apply

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Understanding EC2 Pricing Models: On-Demand, Reserved, and Spot Instances
📖 Scenario: You are managing cloud resources for a small company. You want to understand how different EC2 pricing models work so you can choose the best option for your needs.
🎯 Goal: Create a simple AWS CloudFormation template that defines three EC2 instances, each using a different pricing model: On-Demand, Reserved, and Spot. This will help you see how to configure each pricing option in infrastructure as code.
📋 What You'll Learn
Define an EC2 instance with On-Demand pricing
Define an EC2 instance with Reserved pricing (using a Savings Plan or Reserved Instance equivalent)
Define an EC2 instance with Spot pricing
Use valid AWS CloudFormation syntax
Use clear and simple resource names
💡 Why This Matters
🌍 Real World
Cloud engineers often need to manage EC2 instances with different pricing models to optimize costs and availability.
💼 Career
Understanding how to configure EC2 pricing models in infrastructure as code is essential for cloud architects and DevOps engineers.
Progress0 / 4 steps
1
Create the base CloudFormation template with one On-Demand EC2 instance
Create a CloudFormation template with a resource named OnDemandInstance of type AWS::EC2::Instance. Set the InstanceType to t3.micro and use the AMI ID ami-0abcdef1234567890. This instance will use the default On-Demand pricing.
AWS
Hint

Use the Resources section to define your EC2 instance. The default pricing is On-Demand, so no extra config is needed.

2
Add a Reserved EC2 instance with a tag to indicate reservation
Add a new resource named ReservedInstance of type AWS::EC2::Instance. Use the same InstanceType and ImageId as the On-Demand instance. Add a tag with Key set to PricingModel and Value set to Reserved to indicate this instance is reserved.
AWS
Hint

Tags help identify the instance type. Reserved pricing is managed outside CloudFormation, so tagging is a way to mark it.

3
Add a Spot EC2 instance with Spot options
Add a resource named SpotInstance of type AWS::EC2::Instance. Use the same InstanceType and ImageId. Under Properties, add a InstanceMarketOptions section with MarketType set to spot to specify this is a Spot instance.
AWS
Hint

Spot instances require the InstanceMarketOptions property with MarketType set to spot.

4
Add a Outputs section to show instance IDs
Add an Outputs section to the template. Create three outputs named OnDemandInstanceId, ReservedInstanceId, and SpotInstanceId. Each output should use Ref to return the instance ID of the corresponding resource.
AWS
Hint

Outputs help you see the instance IDs after deployment. Use !Ref to get the instance IDs.

Practice

(1/5)
1. Which EC2 pricing model allows you to pay only for the compute time you use without any long-term commitment?
easy
A. Dedicated hosts
B. Reserved instances
C. Spot instances
D. On-demand instances

Solution

  1. Step 1: Understand On-demand pricing

    On-demand instances let you pay per hour or second without any upfront commitment.

  2. Step 2: Compare with other models

    Reserved requires commitment; Spot can be interrupted; Dedicated hosts are physical servers.

  3. Final Answer:

    On-demand instances -> Option D

  4. Quick Check:

    Pay-as-you-go = On-demand [OK]
Hint: No commitment means On-demand pricing [OK]
Common Mistakes:
  • Confusing Reserved with On-demand
  • Thinking Spot is always available
  • Mixing Dedicated hosts with pricing models
2. Which of the following is the correct way to describe Spot instances in AWS EC2?
easy
A. Instances with a fixed monthly fee
B. Instances that use spare capacity and can be interrupted
C. Instances reserved for 3 years with upfront payment
D. Instances that run only on dedicated hardware

Solution

  1. Step 1: Define Spot instances

    Spot instances use spare AWS capacity and are cheaper but can be stopped anytime.

  2. Step 2: Eliminate other options

    Fixed monthly fee applies to Reserved; dedicated hardware is Dedicated hosts.

  3. Final Answer:

    Instances that use spare capacity and can be interrupted -> Option B

  4. Quick Check:

    Spot = spare capacity + interruption [OK]
Hint: Spot = cheap but can stop anytime [OK]
Common Mistakes:
  • Thinking Spot has fixed fees
  • Confusing Reserved with Spot
  • Mixing Dedicated hosts with Spot
3. You launch an EC2 instance using Spot pricing. What happens if AWS needs the capacity back?
medium
A. Your instance is stopped or terminated with a 2-minute warning
B. You are charged the full On-demand price instead
C. Your instance continues running without interruption
D. Your instance is automatically converted to Reserved pricing

Solution

  1. Step 1: Understand Spot instance interruptions

    AWS can reclaim Spot instances anytime, giving a 2-minute warning before stopping or terminating.

  2. Step 2: Check other options

    Instances do not continue uninterrupted; no automatic price change or conversion to Reserved.

  3. Final Answer:

    Your instance is stopped or terminated with a 2-minute warning -> Option A

  4. Quick Check:

    Spot interruption = 2-minute warning stop [OK]
Hint: Spot instances get 2-minute stop warning [OK]
Common Mistakes:
  • Assuming Spot instances never stop
  • Thinking Spot switches to On-demand automatically
  • Believing Spot instances run like Reserved
4. A user wants to save costs by committing to a 1-year usage but accidentally selects On-demand pricing. What is the main issue with this choice?
medium
A. On-demand pricing does not offer cost savings for long-term commitment
B. On-demand pricing requires upfront payment for 1 year
C. On-demand pricing instances cannot be launched immediately
D. On-demand pricing instances are always interrupted

Solution

  1. Step 1: Understand On-demand pricing characteristics

    On-demand pricing charges per use with no upfront or commitment discounts.

  2. Step 2: Identify the cost-saving option

    Reserved instances offer savings with 1 or 3 year commitments, unlike On-demand.

  3. Final Answer:

    On-demand pricing does not offer cost savings for long-term commitment -> Option A

  4. Quick Check:

    Commitment savings = Reserved, not On-demand [OK]
Hint: Commitment savings only with Reserved pricing [OK]
Common Mistakes:
  • Thinking On-demand requires upfront payment
  • Believing On-demand instances are delayed
  • Confusing interruption with Spot pricing
5. A company runs a critical web application that must be available 24/7 with predictable costs. They also want to reduce expenses by committing to usage. Which EC2 pricing model should they choose and why?
hard
A. Spot instances, because they are cheapest and can be interrupted
B. On-demand instances, because they have no commitment and flexible pricing
C. Reserved instances, because they offer cost savings with a commitment and stable availability
D. Dedicated hosts, because they provide physical isolation

Solution

  1. Step 1: Analyze availability and cost needs

    Critical 24/7 apps need stable availability and predictable costs.

  2. Step 2: Match pricing models to needs

    Reserved instances provide cost savings with 1 or 3 year commitment and stable availability; Spot can be interrupted; On-demand is flexible but more costly.

  3. Final Answer:

    Reserved instances, because they offer cost savings with a commitment and stable availability -> Option C

  4. Quick Check:

    Critical + savings + commitment = Reserved [OK]
Hint: Stable + savings + commitment = Reserved instances [OK]
Common Mistakes:
  • Choosing Spot for critical apps despite interruptions
  • Picking On-demand for cost savings
  • Confusing Dedicated hosts with pricing benefits