Luxury

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Etymology

Middle English luxurie, from Anglo-French luxorie, from Latin luxuria rankness, luxury, excess; akin to Latin luxus luxury, excess

Definitions

b : an indulgence in something that provides pleasure, satisfaction, or ease

Description

In economics, a luxury good is a good for which demand increases more than proportionally as income rises, in contrast to a "necessity good", for which demand is not related to income.

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 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).