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.
TL;DR (Too Long; Didn't Read)
Some examples of luxury goods include high-end vehicles, jewelry, rare artwork, mansions and yachts.
What's the Economic Definition?
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.
People can do without luxury goods when they're short on funds or want to save their money. When they find themselves earning more or feeling more comfortable spending their money, they can purchase more luxury items.
Exploring Some Functional Examples
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 engineering and higher-end components. Those types of luxury goods are not only flashy but also appealing for reasons of performance as well.
Looking at Ornamental Examples
Some luxury goods are primarily or entirely made for presentation rather than function. For example, jewelry with large, rare or exceptionally 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. Their function is to be nice to look at and, of course, to show off to friends, family and guests.
Understanding Conspicuous Consumption
Some luxury goods are purchased mostly for status. These items can be either ornamental or functional, but the defining element is that they are expensive in a way that's visible to others. 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.
Andrew Gellert is a graduate student who has written science, business, finance and economics articles for four years. He was also the editor of his own section of his college's newspaper, "The Cowl," and has published in his undergraduate economics department's newsletter.