, a luxury good
is a good
for which demand
increases more than proportionally as income
rises, and is a contrast to a "necessity good
", for which demand is not related to income. Luxury goods are often synonymous with superior goods
Luxury goods are said to have high income elasticity of demand
: as people become wealthier, they will buy more and more of the luxury good. This also
means, however, that should there be a decline in income its demand will drop.
Income elasticity of demand is not constant with respect to income, and may
change sign at different levels of income. That is to say, a luxury good may
become a normal good
or even an inferior good
at different income levels, e.g. a wealthy person stops buying increasing numbers of luxury cars for his
automobile collection to start collecting airplanes (at such an income level,
the luxury car would become an inferior good).