In economics, a luxury good is a good for which demand increases more than proportionally as income rises, and is a contrast to a “necessity good”, for which demand increases proportionally less than income.
Luxury goods are often synonymous withsuperior goods and veblen goods.
Luxury goods are said to have high income elasticity of demand:
as people become wealthier, they will buy more and more of the luxury good.
This also means, however, that should there be a decline in income its demand will drop.
Income elasticity of demand is not constant with respect to income, and may change sign at different levels of income. That is to say, a luxury good may become anormal good or even an inferior good at different income levels, e.g. a wealthy person stops buying increasing numbers of luxury carsfor his automobile collection to start collecting airplanes (at such an income level, the luxury car would become an inferior good).
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