What Is A Luxury Good?
In today’s economy, it is difficult to define luxury goods. The most common modern definition is “exceeding reasonable demand.” But there are many more potential definitions, depending on your point of view and financial circumstances. In economics, a luxury product is a product that increases in value as income increases, so that expenses on the item become a larger percentage of overall income.
Another definition is “excess demand.” This refers to items that are not bought by people but must be had because they are necessary. An item is considered to be excess demand if it is necessary for someone to have the item or desire its possession. This is not the same thing as “luxury goods.” Luxury goods are more like necessities, because they are needed and desired.
A third definition is “a high price.” This describes an item that is not bought by everyone but is bought by someone who can afford it, and thus feels they must have it. The true luxury goods items, like fine art or works of architecture, are not items that can be considered “high priced.” They are items that are bought primarily for their aesthetic value, rather than because they are too valuable to be owned by anyone else.
Of course, one cannot deny that there are inherent characteristics about luxury goods that are desirable. These include things like superior construction, unique design, quality materials, rarity, and sophistication. These are also things that are not inherent to other types of products. The distinction between luxury goods and common everyday products is not purely a political one; it is also a technical one, which I will discuss below.
When you examine the definition above, it seems pretty clear that the price is the only factor that is intrinsic to a luxury item. After all, if a dollar is worth two cents, does that really make a difference? It is important to understand the meaning of value in this context. The concept of value is intimately tied to the definition of luxury, because a commodity has no inherent value unless it is considered to be luxury goods.
There are two ways to look at this definition. One way is to say that any good or service that is perceived to be valuable is already luxury item. If you buy a new computer and the price tag is two hundred dollars, then you have just bought two luxury items at two different prices. While this sounds like a great deal, you should remember that each item has its own intrinsic value.
On the other hand, the second way to look at this is to say that the price of an item is only an expression of its value. Now, if the price is set before the transaction, this makes it clear that the seller has controlled the price, and that you are not free to negotiate. If you were shopping for a new computer, you would have the option of negotiating the price up or down. If you set the price at two hundred and fifty, then the seller has the option of lowering it to one hundred. You would not be free to bargain, but you would be able to accept the price if the price range was not too far below what you originally set out to spend.
It is important to note that not all luxury goods are meant to be enjoyed. Some luxury items are simply luxury items because they are expensive, and because people expect them to be. Items like this may not fall into the category of luxury goods, because they are not perceived to be luxury goods. They are, however, luxury items because they are expected to be enjoyed. If you do not like what you are buying, then it is not luxury.