Questions and Answers
Luxury good economics?
For a luxury good. When price changes does quantity demanded change by proportionally more? Thanks.
Posted by help
Ceteris paribus, yes. Luxury goods have Elasticity greater than 1, so a change in price of 1%, it will change quantity demanded more than 1%.
Some luxury products have been claimed to be examples of Veblen goods, with a positive price elasticity of demand: for example, making a perfume more expensive can increase its perceived value as a luxury good to such an extent that sales can go up, rather than down.
The main factor for the luxury good’s elasticity is the elasticity of income. Luxury good is a good for which demand increases more than proportionally as income rises, contrast to a “necessity good” for which demand increases less than proportionally as income rises. Luxury goods are said to have high income elasticity of demand: as people become more wealthy, they will buy more and more of the luxury good. This also means, however, that should there be a decline in income its demand will drop.
I hope this helps.
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