Business, Legal & Accounting Glossary
Luxuries in economics refer to the utility that a consumer derives from luxury goods. Thus, it is necessary to understand the concept of luxury goods first in order to understand the concept of luxuries. In economics, luxury goods are that type of goods for which amount of demand increases in a proportional manner with an increase in income. In simpler terms, a rise in income increases the tendency of a consumer to spend on luxury goods. Thus, luxury goods have a high elasticity of demand. Since it is known that income elasticity of good does not remain constant with respect to the level of income, luxury good can be transformed into normal good or inferior good at different levels of income.
Explaining the above concept with an example, we can say that any individual who has wealth and is fond of buying luxury cars can at a point of time stop buying cars and invest money in buying aeroplanes. Car here is transformed from a luxury good to inferior good.
Some luxury products have been claimed to be examples of Veblen goods, with a positive 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. Luxury goods are considered of the highest quality and possess the highest price. Luxuries are not only referred to luxury goods but also services. Service of any full time or living-in domestic servant comes under luxuries as this also indicates disparity of income. Apart from this, some financial services like services provided in brokerage houses can be considered as a kind of luxury as people with lower income cannot afford these types of services.
Market belonging to luxury goods are always on a high for several continuous years. After the Asian financial crisis in 1997, this market has been doing quite well. The Year 2000 was the best time for the luxury market as it amounted to US$170 billion and grew up to 7.9 per cent. In 2000, the largest market was the market for luxury drinks like whisky, champagne, cognac.
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This glossary post was last updated: 30th March, 2020 | 0 Views.