The luxury goods are all those who at cost or demand the kind of satisfying, are consumed by high – income individuals. These goods have a particularity with respect to the Law of Demand , since as the consumer’s income increases, their demand increases in greater proportion.
Sumptuary or luxury goods are defined as those destined to satisfy needs that are above those considered basic. This type of property has a particular characteristic in the income / demand relationship . As consumer income increases, the demand for luxury goods increases at a greater rate. This differentiates it from essential goods. Both are part of the normal goods.
- Demand curve for luxury goods
- Taxes on luxury goods
The concept of luxury goods is related to the behavior towards income and consumer demand . These goods, also known as luxury goods, are characterized by the fact that, as the consumer’s income increases , their demand increases in greater proportion.
Together with essential goods, luxury goods are part of normal goods . They comply with the Normal Law of Demand , with the characteristics that we have already mentioned. An increase in prices causes a fall in demand.
Luxury goods have a characteristic that differentiates them from other economic goods . It is the elasticity in the demand / income or income ratio .
As household income increases, the consumption of luxury goods increases in a larger proportion. In technical terms, the elasticity of demand for these goods is said to be greater than 1.
There are some minor controversies among economists and not all consider luxury goods as part of the set of normal goods. Although, most authors are inclined to include them because they comply with the Normal Law of Demand.
On the other hand, luxury goods have a substantial difference with essential goods . The latter have a purchase limit by consumers, while luxury goods do not. To exemplify this, a family that consumes 2 liters of milk daily, if it receives an increase in its income, it is unlikely that it will consume 3 liters, unless the need is unsatisfied with those 2 liters.
On the contrary, if a consumer buys 2 pairs of shoes per year, an increase in their income can push the purchase of 3 or more pairs per year.
Demand curve for luxury goods
Luxury or luxury goods comply with the Law of Demand. However, it differs from other goods if we analyze what is known as the income elasticity of demand .
This elasticity measures the proportion of the variation in the demand for a good, with respect to the changes in the income level of consumers.
If the coefficient of income elasticity of demand is greater than 1, we are talking about a luxury good.
Taxes on luxury goods
Many countries consider that the acquisition of luxury goods shows the taxpaying capacity of the consumer . For this reason, these countries have enacted laws that tax luxury goods in a special way. They have rates that are outside the ordinary tax system.
Although the taxes on these assets increase the State’s collection, in some countries it affects the demand.
Another aspect to take into account when taxing luxury goods is to consider the general state of consumer income. In some regions or countries, luxury goods are considered those that would not be in other countries. An example of this is a television.
- High-end imported cars
- Homes that exceed a certain market value
- Jewelery with gemstone applications
- Gold, silver and ivory
- Luxury tourist travel