Luxury good
Also called: Luxuries · Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 12, Ch 2 "Theory of Consumer Behaviour"
Meaning
A luxury good is a normal good whose demand rises more than in proportion to income. Its income elasticity is greater than 1. Income elasticity eY = % change in quantity demanded ÷ % change in income. Luxury goods usually also have price-elastic demand, because buyers can easily postpone or cut back on them. As incomes rise, a larger share of spending goes to luxuries.
Example
Suppose a family's income rises by 10% and its spending on jewellery rises by 25%. Then eY = 2.5, so jewellery is a luxury for that family. Cars and foreign travel behave in the same way.
Don't confuse with
- Necessity good: demand rises with income, but less than in proportion (0 < eY < 1), as with foodgrains or salt.
- Veblen good: demand rises when the price rises because a high price signals prestige. Being a luxury is about how demand responds to income, not to price.