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).
Some luxury products have been claimed to be examples of Veblen goods, with a negative price elasticity of demand: for example, making a perfume more expensive can increase its perceived value as a luxury good to such an extent that sales can go up, rather than down.
Although the technical term luxury good is independent of the goods’ quality, they are generally considered to be goods at the highest end of the market in terms of quality and price.
Classic luxury goods include haute couture clothing, accessories, and luggage.
Many markets have a luxury segment including, for example, automobile, yacht, wine, bottled water, coffee, tea, foods, watches, clothes,jewelry, and high fidelity.
Luxuries may be services. The hiring of full-time or live-in domestic servants is a luxury reflecting disparities of income.
Some financial services, especially in some brokerage houses, can be considered luxury services by default because persons in lower-income brackets generally do not use them.
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