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In economics, a luxury good (or upscale good) is one for which demand grows faster than income, such that expenditures on the item become a more significant percentage of overall spending.
In contrast to necessity items, where demand grows at a slower rate than income, luxury goods demand grows at a faster rate. The term “luxury goods” is frequently used interchangeably with “better products.”
The term “luxury” comes from the Latin word luxuria, which meaning “exuberance,” “plenty,” or “abundance.”
A luxury product may be recognized by comparing demand at one moment to demand at a later period in time, with a different income level. When income rises, so does the need for luxury items, which grows even faster than income. When revenue falls, the demand for luxury items fails even more rapidly than income. For example, if income rises by 1% and the need for a product rise by 2%, the product is considered a luxury item.
In contrast, demand for essential commodities remains constant or only marginally falls when income declines.
Luxury items have a high-income elasticity of demand, which means that as individuals get wealthy, they will buy proportionately more of them. This also indicates that if income falls, demand will fall more than proportionally. The income elasticity of demand is not constant about income, and it might change signs at various income levels. That is to say, at different economic levels, a luxury product may become a necessity or even a substandard good.
Some luxury items have been alleged to be Veblen goods, having a positive price elasticity of demand: for example, increasing the price of perfume might raise its perceived worth as a luxury commodity to the point that sales rise rather than decrease. It’s worth noting, though, that Veblen products aren’t the same as luxury items in general.
Even though the technical word luxury good is unrelated to the quality of the products, they are typically believed to be items at the top of the market in terms of both quality and price. Haute couture clothes, accessories, and baggage are examples of classic luxury items. Luxury versions of vehicles, yachts, wine, bottled water, coffee, tea, delicacies, watches, clothing, jewelry, and high-fidelity sound equipment are all examples of markets with a luxury section.
Services might be considered luxuries. Full-time or live-in domestic staff are a luxury that reflects wealth differences. Some financial services, particularly those provided by brokerage firms, are considered luxury services by default since those in lower-income groups rarely use them.
Luxury items are frequently packaged in unique ways to set them apart from their famous counterparts.
Initially, only the very affluent and “aristocratic world of old money” had access to luxury products, providing a history of tradition, higher quality, and a pampered shopping experience. The move from custom-made (bespoke) works with exclusive distribution procedures by specialized, quality-conscious family-run and small companies to mass manufacturing specialty branded products by profit-driven major corporations and marketers have changed the face of luxury goods.
A product or service that is promoted packaged, and sold by multinational companies that are focused “on expansion, exposure, brand awareness, advertising, and, above all, money” is what contemporary luxury is all about. Luxury trademarks are becoming offered to all consumers at a premium price worldwide, even online.