Luxury goods
Luxury goods are defined as high-quality, expensive items that are not essential for survival but serve as symbols of status and wealth within society. Typically targeted toward affluent consumers, these items include luxury cars, designer handbags, and high-end watches, as well as luxury services like fine dining and premium travel. The demand for luxury goods is significantly influenced by income levels; as a person's income increases, their desire for luxury items tends to rise proportionally, reflecting a concept known as income elasticity of demand.
Luxury goods can be categorized into functional items, which serve practical purposes, and ornamental items, which are primarily for display and often associated with prestige. While generally accessible to wealthier individuals, people from various income levels may still purchase luxury items as a form of self-reward or to elevate their social status. The perception of quality often drives consumers to prefer luxury brands, sometimes leading to irrational spending habits, where individuals choose high-priced items despite more affordable alternatives. Authenticity is a significant concern in the luxury market, as counterfeit products are prevalent; thus, consumers frequently seek reassurance through certificates of authenticity or trusted sources. Overall, luxury goods encapsulate a complex interplay of social status, consumer behavior, and economic factors, reflecting individual and societal values.
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Luxury goods
In business and finance, luxury goods are expensive, high-quality items desired by people in a society. They are not necessary for survival, but instead are symbols of status and position. They are high-priced and usually available in limited quantities. Luxury goods are mostly accessible to the wealthy class. Examples of luxury goods include Porsche sports cars, Rolex watches, and Prada handbags. Luxury goods also refer to service-related items, such as restaurant meals and airline travel. In economic terms, luxury goods are associated with elasticity in relation to income. A person's demand for luxury goods increases proportionally with rising income. This means that the more money an individual has, the more money that person will spend on luxury goods. When a person has less money, the demand for luxury goods falls. In addition to social status, some people buy luxury goods to boost their self-esteem or as a reward for an accomplishment.
Background
Luxury goods are defined by a calculation known as the income elasticity of demand. It measures the responsiveness of the quantity demanded of an item to changes in an individual's income. It is calculated as the percentage of demand divided by the percentage in income. Figuring out the income elasticity of demand determines whether a good is a normal good or an inferior good. Normal goods are further divided into necessities and luxuries. When an increase in income leads to an increase in quantity demanded, the good is a normal good. The income elasticity of demand for normal goods is a positive number.
A good is a necessity when the quantity demanded is not affected by a rise in income. For example, a 5 percent increase in income results in the quantity demanded going up by less than 5 percent. The income elasticity of demand for a necessity good is less than one. Examples of necessity goods include food and clothing, which people need to survive.
A good is a luxury when the quantity demanded is highly responsive to an increase in income. For instance, a 5 percent rise in income generates a more than 5 percent increase in quantity demanded. Luxury goods have an income elasticity of demand greater than one. Examples of luxury goods include designer clothing, restaurant meals, and airline travel.
When the quantity demanded drops as income increases, the good is an inferior good. Inferior goods are items that are less costly substitutes for higher-priced goods. The calculated income elasticity of demand for inferior goods is a negative number. Examples of inferior goods include generic brands and public transportation.
When incomes fall, it affects the quantity demanded of luxury, necessity, and inferior goods. A decrease in income leads to a rapid decline in demand for luxury goods. People can go without these items since they are not essential for survival. Demand for necessity goods also decreases but at a slower rate. The demand of inferior good rises in response to a decrease in income.
Overview
Luxury goods are dependent on income. Although these items have more affordable counterparts, consumers—typically ones who are wealthy—choose to pay for the name brand and exclusivity of luxury goods. Owners often display luxury items to indicate their position in society to others. For this reason, luxury goods are also called positional goods. Luxury goods may serve the same purpose as necessity goods but usually feature a high level of quality. Some consumers are willing to spend more money for higher quality items. The items may be made with better-quality materials and more advanced parts.
Luxury goods can be broken down into functional and ornamental goods. Functional luxury goods such as purses have a working purpose. A $1,500 Prada leather handbag holds a person's items in the same way as a $30 faux-leather handbag. However, the Prada handbag features stain-resistant leather, high-quality accents, and name brand recognition. Some individuals may be willing to spend more money on these qualities.
Ornamental luxury goods include jewelry, artwork, and designer clothing. These goods may feature rare gemstones, a specific artist's work, or the name of a famous designer. The items are meant to be displayed, as their value comes from the creators' reputations or their hard-to-find components.
Luxury items can be relative and subject to technological developments and supply. In the mid-twentieth century, cars and televisions were considered luxuries, since few people owned them because they were expensive. As more people bought the products, they became more widespread, and their prices decreased. Throughout the decades that followed, cars and televisions lost their exclusivity, and many people began to regard them as necessity goods.
However, high-end brands of cars and televisions remained luxury items. Luxury brands of cars, such as Porches and BMWs, work in the same manner as less expensive brands, such as Fords and Chevrolets. However, Porsches are considered high-performance vehicles, utilize top-of-the-line parts, and command higher prices. Television makers such as Sony and Samsung offer big-screen, high-definition televisions to attract consumers looking for more than a basic television set.
Luxury goods are not strictly limited to the wealthy. People of varying incomes purchase luxury goods. Some people buy luxury goods because they believe that higher prices automatically mean better quality. This is sometimes called irrational spending. Individuals may purchase higher-priced goods instead of more affordable but equally effective counterparts. For example, people wait to buy the newest version of Apple's popular iPhone cellphone, but other brands of cell phones may be equipped with similar or even more desirable features. This example also illustrates brand loyalty. When people find a brand they like, they continue to buy the brand's products regardless of price.
Individuals may also purchase luxury goods because they have low self-esteem. People living on low incomes may buy a Kate Spade purse or a Rolex watch to make themselves feel better; this is also known as retail therapy. The item is one they cannot normally afford, but buying the good is a luxury they are allowing themselves.
People may reward themselves with luxury goods. An individual may celebrate an accomplishment, such as a pay raise or a new job, by buying a new pair of designer shoes or going out to an upscale restaurant.
Many consumers are concerned about authenticity when buying luxury goods. Fake versions of designer brands are easy to procure at a fraction of the cost. However, many buyers are willing to spend more money on brands that they know are authentic. Furthermore, many brands offer certificates of authenticity to ensure consumers that the item is real. If consumers choose to buy an item second-hand, such as a luxury purse, jewelry, or apparel item, they can have the item authenticated or ask for the certificate from the seller to verify they are receiving a designer product. Some computer-generated artificial intelligence is capable of authenticating items as well.
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