Luxury goods are consumption goods that are expensive, ornamental or otherwise difficult to obtain, and are typically accessible only to the wealthy. Luxury goods can be functional, like cars, or nonfunctional, such as jewelry. They often indicate status. For this reason, they are sometimes called "positional goods" because they indicate the owner's position in society.
In economics, luxury goods are defined in terms of their elasticity with respect to income. If a good has an elasticity above one, it is a luxury good. In layman's terms, this means that a person's demand for luxury goods is highly dependent on income. Changes in income produce proportionately large changes in the demand for luxury goods. According to the Classof1 website, luxury goods "can be foregone during periods of below average income and falling consumer confidence."
Luxury goods that perform a function might be similar in purpose to ordinary goods, but with higher levels of craftsmanship, more advanced design, better-quality components, or other improvements. For example, luxury car brands like Porsche work in the same way as less expensive cars, but typically boast greater comfort and performance and higher-end components.
Some luxury goods are made for presentation rather than function. For example, jewelry with large, rare or high-quality gems, clothing from designer brands, and rare artwork do not have a function separate from their appearance as a display item. These items derive their high value from the reputation of their creators, the difficulty of acquiring them, and other factors that limit their supply and elevate them above similar products sold on the mass market.
Some luxury goods are purchased for status. These items can be either ornamental or functional, but the defining element is that they are visibly expensive. For example, yachts, large mansions and ornate silverware are all functional, but they also serve to advertise the owner's wealth and status. Goods and services that fall under conspicuous consumption need not perform better or look more beautiful than other items, as long as they appear expensive.
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