What are Luxury Goods?
Luxury goods are defined by economists as those with a high income elasticity of demand. In other words, people buy more and more of them as they get wealthier. An example is high priced time-pieces. We might acquire our first luxury watch only when we start to have high disposable income. As we become wealthier still, we may buy more. Conversely, if our wealth declines we will most likely hold off spending $10K for another swanky watch. Demand characteristics for necessity goods like food are very different since people dont automatically buy more if they become wealthier — and they might even buy less. An example is regular white bread. No matter how destitute we become, we still need to eat a roughly constant number of loaves. But as we become well-to-do we might eat less of it, dining instead on organically-grown whole wheat breads costing ten times more. Income elasticity of demand can also change at different levels of income. Someone might collect sports cars when he is merely
