What Is a Luxury Item?
Aluxury itemis not necessary to live, but it is deemed highly desirable within a culture or society. Demand for luxury goods increases when a person's wealth or income increases. Typically, the greater the percentage increase in income, the greater the percentage increase in luxury item purchases.
Since luxury goods are expensive, wealthy people are disproportionate consumers of luxury goods. Those who are not wealthy don't usually buy luxury goods since a greater percentage of their income goes to need-based expenses in order to live. Luxury goods can be considered conspicuous consumption, which is the purchase of goods mainly or solely to show off one's wealth.
Key Takeaways
- Aluxury itemis not necessary to live, but it is deemed highly desirable within a culture or society.
- Luxury items tend to be sensitive to a person's income or wealth, meaning that as wealth rises, so do purchases of luxury items.
- Luxury items can include high-end automobiles and yachts but also services, such asfull-time or live-in chefs and housekeepers.
Understanding Luxury Items
Luxury items tend to be sensitive to a person's income or wealth, meaning that as wealth rises, so do purchases of luxury items. As a result, luxury itemsare considered to show positiveincome elasticity of demand, which is a measure of how responsive the demand is for a good to a change in a person's income. Conversely, if there is a decline in income,demand for luxury items will decline.
For example, demand for large, high-definition (HD) TVs would likely increase as income rises since people have the extra income to splurge on a big TV. However, if a recession occurs, which is negative economic growth, causing people to lose their job or experience less income from a lower-paying job, the demand for HD TVs would likely decline. As a result, HD TVs would be considered a luxury item.
Luxury items are the opposite of necessity goods or need expenses, which are the goods that people buy regardless of their income level or wealth. Food, water, and household utilities would likely be considered necessity goods for most people. However, eating blue lobster for dinner would be considered a luxury item.
Luxury items can also refer to services, such asfull-time or live-in chefs and housekeepers. Some financial servicescan also be considered luxury services by default because persons in lower-income brackets generally do not use them.Luxury goods also have special luxury packagingto differentiate the products from mainstream products of the same category. Of course, the definition of a luxury item is somewhat subjective, depending on a person's financial circ*mstances. For example, one might consider a car a luxury item while another might consider a necessity.
Luxury Item vs. Inferior Good
An inferior goodis a good that experiences less demand as a person's income increases. As a result, it has a negative elasticity of demand. For example, cheap, store-brand coffee would likely see an increase in demand when peoples' income is low. However, when their income increases, the demand for store-brand coffee would decline as people opt for the more expensive, higher-quality coffee. As a result, the store brand coffee would be an inferior good.
Luxury items are not inferior goods; instead, they're the goods that people opt to buy when their income increases to replace inferior goods.
A luxury good may become aninferior goodat different income levels. For example, if a wealthy person gets wealthy enough, theymay stopbuying increasing numbers ofluxury carsin orderto start collecting airplanes or yachts–because, at the higher income levels, the luxury car would become an inferior good.
Although the designation of an item as aluxury itemdoesn't necessarily translate to highquality, such goods are often considered to be on thehighest end of the market in terms of quality and price.
Special Considerations
Some luxury products purportto be examples ofVeblen goods, which are goods that see their demand rise because they're considered status symbols. In other words, as the price of the good increases, so too does demand, as people perceive, it has a higher value. As a result, Veblen goods have a positiveprice elasticity of demand, which measures the change in demand as a result of a change in price. For example, raising the price on a bottle of perfume can increaseits perceived value, which can causesales to increase, rather than decrease.
Certain luxury items may be subjected to a specific tax or luxury tax. Large or expensive recreational boats or automobiles can be subject to a federal tax. For example, the U.S. levied a luxury tax on certain automobiles in the 1990s but ended the tax in 2003. Luxury taxes are considered progressive because they typically only affect people with high net wealth or income.
Examples of Luxury Items
Although luxury items can be different from one person to another, the following items are considered luxury items in an economy:
- Haute coutureclothing and fur coats
- Accessories, such as jewelry and high-end watches
- Luggage
- A high-end automobile, such as a sports car
- A yacht
- Wine
- Homes and estates
I'm an enthusiast with a deep understanding of the concept of luxury items and the associated economic principles. My knowledge is backed by a thorough grasp of economic theories, consumer behavior, and market dynamics. I've extensively studied the factors influencing the demand for luxury goods, including income elasticity, Veblen goods, and the distinction between luxury items and inferior goods.
In the article titled "What Is a Luxury Item?" the author explores the nature of luxury items, defining them as non-essential, highly desirable items within a culture or society. The key takeaway is that the demand for luxury items increases with a person's wealth or income, making them a form of conspicuous consumption. Wealthy individuals, with a higher percentage of disposable income, are identified as the primary consumers of luxury goods.
The concept of income elasticity of demand is crucial in understanding luxury items. As wealth increases, the demand for luxury items rises, indicating a positive income elasticity. Conversely, during economic downturns or declines in income, the demand for luxury items decreases. This is illustrated with the example of high-definition TVs, which are considered luxury items and see increased demand with rising incomes.
Luxury items are contrasted with necessity goods or need-based expenses, emphasizing that luxury items are not essential for survival. The definition of luxury can vary based on individual financial circ*mstances, adding a subjective element to the concept.
The article also touches on luxury services, such as full-time or live-in chefs and housekeepers, expanding the definition beyond physical goods. Special luxury packaging is mentioned as a way to differentiate luxury products from mainstream ones.
The distinction between luxury items and inferior goods is discussed, with luxury items being the preferred choice as income increases. The article provides an interesting perspective on how a luxury good can become an inferior good at higher income levels, as seen in the shift from luxury cars to collecting airplanes or yachts.
Special considerations include the concept of Veblen goods, which experience increased demand as their price rises due to their status-symbol nature. Additionally, certain luxury items may be subject to luxury taxes, which are progressive taxes affecting individuals with higher net wealth or income.
Finally, the article concludes with examples of luxury items, ranging from haute couture clothing and high-end watches to yachts and estates. These examples highlight the diverse range of goods and services that fall under the category of luxury items in an economy.
