# Understanding Luxury Goods: Definition, Demand, and Examples

![Luxury Item: A non-essential item that is deemed highly desirable within a culture or society.](https://www.investopedia.com/thmb/AUx7vnC7o4F6ySbMZbLmosAciiY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/luxury-item.asp-final-5f4b7f07cb9741bbbb0f0d275ef98ce9.png)

*— Investopedia / Zoe Hansen*

## What Is a Luxury Item?

A luxury item is a good or service that is not essential for basic living but is considered highly desirable within a culture or society. Demand for luxury goods tends to rise as a person's income or wealth increases, often at a faster rate than the income growth itself.

These goods, such as high-end cars, designer clothing, premium cookware, or exclusive services, are often associated with status and can represent [conspicuous consumption](https://www.investopedia.com/terms/c/conspicuous-consumption.asp), where individuals buy them primarily to display wealth or social standing.

### Key Takeaways

*   Luxury items are non-essential goods that become highly desirable as an individual's wealth or income rises, reflecting positive income elasticity of demand. These items can include products like high-end cars and services like personal chefs.
*   The demand for luxury goods often increases with rising income levels but decreases during economic downturns, distinguishing them from necessity goods, which are purchased regardless of economic conditions.
*   Luxury goods can serve as status symbols and are sometimes categorized as Veblen goods, where increasing prices can lead to higher demand due to their perceived prestige.
*   While the definition of a luxury item is subjective and varies based on personal financial circumstances, common examples include haute couture clothing, yachts, and high-end electronics.
*   Luxury items differ from inferior goods, which see decreased demand as income levels rise, as consumers opt for higher-quality substitutes instead of basic alternatives.  
    

## How Income Impacts Luxury Item Purchases

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 items are considered to show positive [income elasticity of demand](https://www.investopedia.com/terms/i/incomeelasticityofdemand.asp), 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. During a [recession](https://www.investopedia.com/terms/r/recession.asp), when people may lose jobs or earn less, demand for HD TVs likely drops. 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](https://www.investopedia.com/managing-wealth/whats-value-blue-lobster/) for dinner would be considered a luxury item.

Luxury items can include services like full-time chefs or housekeepers, and some financial services used mainly by wealthier individuals. Luxury goods also have special luxury packaging to 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 circumstances. For example, one might consider a car a luxury item while another might consider it a necessity.

## Comparing Luxury Goods and Inferior Goods

An [i](https://en.wikipedia.org/wiki/Inferior_good)[nferior good](https://www.investopedia.com/terms/i/inferior-good.asp) is 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 people's 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 an inferior good at different income levels. If a wealthy person becomes wealthier, they might stop buying more luxury cars and start collecting planes or yachts because luxury cars become inferior goods.

Although the designation of an item as a luxury item doesn't necessarily translate to high quality, such goods are often considered to be on the highest end of the market in terms of quality and price.

## Understanding Veblen Goods and Luxury Taxes

 Some luxury products are [Veblen goods](https://www.investopedia.com/terms/v/veblen-good.asp), where demand grows as they are seen as 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 positive [price elasticity of demand](https://www.investopedia.com/terms/p/priceelasticity.asp), 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 increase its perceived value, which can cause sales to increase, rather than decrease.

Certain luxury items may be subjected to a specific tax or [luxury tax](https://www.investopedia.com/terms/l/luxury_tax.asp). 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.

## Common Examples of Luxury Goods

Although luxury items can be different from one person to another, the following items are considered luxury items in an economy:

*   Haute couture clothing [and fur coats](https://www.investopedia.com/articles/personal-finance/092415/how-get-most-money-your-fur-coat.asp)
*   Accessories, such as jewelry and high-end watches
*   Luggage
*   A high-end automobile, such as a sports car
*   A yacht
*   Wine
*   Homes and estates

## The Bottom Line

Luxury items are non-essential goods and services that are highly desirable and often serve as symbols of wealth and status. Demand for them grows as income rises, reflecting their positive income elasticity of demand, unlike necessity or inferior goods.

Often tied to conspicuous consumption, they include high-end automobiles, designer clothing, and exclusive services, though what counts as "luxury" can be subjective. Many luxury goods are also subject to luxury taxes, which can affect both consumer demand and government revenue.

> **Article Sources**
>
> 1.  Douglas Curtis and Ian Irvine. “[Principles of Microeconomics 4.5: The Income Elasticity of Demand](https://socialsci.libretexts.org/Bookshelves/Economics/Principles_of_Microeconomics_%28Curtis_and_Irvine%29/02%3A_Responsiveness_and_the_Value_of_Markets/04%3A_Measures_of_response-_Elasticities/4.05%3A_The_income_elasticity_of_demand).” LibreTexts, 2023.
>     
> 2.  Congress.gov. “[H.R.5835 - Omnibus Budget Reconciliation Act of 1990](https://www.congress.gov/bill/101st-congress/house-bill/5835/text).” Page 104 Stat. 1388-439.
>     
> 3.  Congress.gov. “[H.R.3448 - Small Business Job Protection Act of 1996](https://www.congress.gov/bill/104th-congress/house-bill/3448/text).” 110 Stat. 1839.