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What Is a Luxury Good?

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  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 12 October 2014
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There are many different definitions for what constitutes a luxury good. Some economists define it as any item where demand is primarily influenced by income or wealth. Others consider a luxury good to be any item that is optional as opposed to necessary, or items well above the standard of necessity. Several other factors may influence whether a specific object may be considered a luxury good, including brand name association, availability, price, and socio-economic or cultural status.

The economic definition of a luxury good is based more on factors of affordability compared to income rather than cultural status or need vs. want criteria. In this initial definition, a good is considered a luxury when a person must have a certain income or wealth level in order to feasibly purchase it. Additionally, items that see an increased demand based solely on increasing income are also economically considered luxury goods. In some cases, a luxury good or service, such as a country club membership, may not even be available to the general public, reserved instead for those with proven wealth.

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Another definition of luxury goods relates to their status as optional items. Food, shelter, and clothing are all considered basic necessities that do not change regardless of income status. A television, however convenient and enjoyable, is not a survival necessity, and thus considered a luxury good. A person's income may influence his or her ability to spend money on luxury goods, but the need for survival products is unwavering, regardless of income.

An upgraded or enhanced version of a necessary item may be considered a luxury good. For instance, a person may need vegetables, but does not necessarily need organically grown vegetables. Water is a constant basic necessity, but bottled purified water is a luxury version. Shelter helps keep the cold away and rain off, but a mansion performs well beyond these basic standards. Luxury market segments allow consumers to focus their disposable income on areas that are important to them; while many people can't afford to opt for a luxury good in every area, the existence of luxury segments can allow a little luxury into most people's lives.

Status is another concept frequently associated with the idea of a luxury good. Certain brand names are commonly considered luxury brands, often because of price, company history, or limited market access. A cultural identification of an item as high status may give it a reputation as a luxury good even if the quality of the product is similar to or less than a cheaper version. Some market studies have shown that people are more willing to pay more for a brand product because of loyalty or perception of it as a better product, even if it is demonstrably inferior to a generic version.

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