Luxury

Background

Luxury refers to goods or services that see a disproportionate increase in consumption relative to increases in income. Essentially, as people become wealthier, they spend a larger percentage of their income on such items, which are not essential for one’s basic comfort and life maintenance but are rather often characterized by a higher quality, exclusivity, or status symbol.

Historical Context

The concept of luxury has evolved over centuries, reflecting changes in socio-economic conditions and cultural practices. In historical terms, luxury often symbolized the power and social status of the affluent segments of society. Over time, as economies grow and more people accumulate wealth, the array of goods and services classified under luxury has expanded.

Definitions and Concepts

A luxury good or service is defined economically as having an income elasticity of demand greater than unity (greater than one). This means that the percentage change in quantity demanded for these goods exceeds the percentage change in income. Consumers’ desire for luxury often increases more rapidly than their income, leading to higher relative expenditures on luxury items as incomes rise.

Income Elasticity of Demand: A measure of how much the quantity demanded of a good responds to a change in consumers’ income.
Engel Curve: A graphical representation showing how household expenditure on a particular good or service varies with household income.

Major Analytical Frameworks

Classical Economics

Classical economics did not specifically focus on the concept of luxury goods, but writers like Adam Smith recognized the role of conspicuous consumption and the differentiation between needs and wants.

Neoclassical Economics

Neoclassical economics introduced the elasticity concepts, including income elasticity of demand, to explain behavior in a more rigorous way. Modern consumption theories in this avenue contribute directly to understanding luxury consumption.

Keynesian Economics

Keynesian framework may discuss luxury consumption in the context of consumption functions and the marginal propensity to consume. Increases in overall income would manifest in increased consumption of non-essential items.

Marxian Economics

Luxury consumption could be viewed critically within a Marxian framework, emphasizing social inequality and how luxury consumption highlights the disparities in wealth distribution within capitalist societies.

Institutional Economics

Institutional economists might explore how cultures and societal norms influence what is considered a luxury and how these good’s definitions can change over time.

Behavioral Economics

Behavioral economists study the psychological drives and societal influences behind luxury consumption, including issues of status, identity, and irrational consumer behaviors.

Post-Keynesian Economics

Post-Keynesian economics would incorporate critiques of consumption patterns and emphasize income distribution as determining broader economic health, possibly critiquing the economic structures that facilitate significant luxury consumption amidst inequality.

Austrian Economics

Austrian economics might analyze luxury through the lens of individual preferences and subjective value theory, acknowledging personal choices and utility derived from luxury goods.

Development Economics

Development economists differentiate luxury consumption in developed versus developing countries, often addressing the gap in access to luxury and the implications for economic development.

Monetarism

In monetarist frameworks, changes in money supply could impact luxury consumption patterns as it pertains to the overall economic behavior and price level shifts.

Comparative Analysis

Luxury goods exhibit different consumption patterns compared to necessities. While needs such as basic food, shelter, and healthcare have inelastic demand relative to income changes, luxuries display highly elastic demand. The differentiation links directly to consumer preferences, income distribution, and broader economic indicators.

Case Studies

Case studies of luxury consumption can focus on specific markets, such as high-end automobiles, designer fashion, or exclusive travel experiences. Studies often observe regions with significant wealth, like the United States, Europe, or emerging market economies with rising wealth trends.

Suggested Books for Further Studies

“Luxury: A Rich History” by Peter McNeil and Giorgio Riello
“Deluxe: How Luxury Lost Its Luster” by Dana Thomas
“The Luxury Strategy: Break the Rules of Marketing to Build Luxury Brands” by Jean-Noël Kapferer and Vincent Bastien

Necessity: A good or service whose consumption does not rise proportionately with income; its income elasticity is less than unity.
Income Elasticity of Demand: The responsiveness of the quantity demanded for a good to income changes.
Engel Curve: Displays the relationship between income levels and spending on a particular good or service.