A luxury good is a product or service for which it is fulfilled that, in the face of a higher consumer income, the demand increases in a greater proportion.
In other words, a luxury good is one where consumption accelerates if the purchasing power of the user increases.
In more technical terms, this means that, for this type of merchandise, the income elasticity of demand is greater than 1.
Luxury goods versus essential goods
As we explained earlier, the demand for these luxury goods is growing much faster and in greater quantity than people's income.
So that we see it clearly, a totally opposite process is produced than in a staple good. In the latter case, even if disposable income increases, demand will not rise much because the consumer's requirement will already be covered.
However, luxury goods and those of first necessity share something in common: They are considered within the category of normal goods. That is, in both cases, an increase in income generates a positive variation in the demand for the merchandise.
Example of a luxury good
Let's imagine that each week a person buys a carton of milk. If you increase your rent, you may purchase a maximum of two units of that product, but not more because your need will already be covered.
However, when purchasing power grows, the user does have a greater predisposition to buy other goods such as household appliances, a trip or a more expensive car. These are common examples of luxury goods.
It should also be clarified that the classification of products varies according to prices and the average salary of the country in which we are located. In some places, a television might be considered a luxury good and in others it might not.Inferior good Substitute good Good normal