Table of Contents Expand Table of Contents What Is a Luxury Item? Influence of Income Luxury Goods vs. Inferior Goods Veblen Goods and Luxury Taxes Examples The Bottom Line Luxury Goods Explained: Definition, Demand Dynamics, and Key Examples By Will Kenton Full Bio Will Kenton is an expert on the economy and investing laws and regulations. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU. Learn about our editorial policies Updated October 27, 2025 Reviewed by Marguerita Cheng Reviewed by Marguerita Cheng Full Bio Marguerita is a Certified Financial Planner (CFP), Chartered Retirement Planning Counselor (CRPC), Retirement Income Certified Professional (RICP), and a Chartered Socially Responsible Investing Counselor (CSRIC). She has been working in the financial planning industry for over 20 years and spends her days helping her clients gain clarity, confidence, and control over their financial lives. Learn about our Financial Review Board Fact checked by David Rubin Fact checked by David Rubin Full Bio See More David is comprehensively experienced in many facets of financial and legal research and publishing. As an Investopedia fact checker since 2020, he has validated over 1,100 articles on a wide range of financial and investment topics. Learn about our editorial policies Investopedia / Zoe Hansen Close What Is a Luxury Item? Luxury goods are non-essential items that signal wealth and social status, with demand rising faster than income growth. Unlike necessities or inferior goods, they appeal to consumers seeking exclusivity and prestige. Examples include designer clothing, high-end cards, and premium services, often purchased to display success. Demand for luxury goods tends to fall during economic downturns, reflecting their close link to consumer confidence and disposable income. Key Takeaways Luxury items are desirable non-essential goods that reflect positive income elasticity, meaning demand increases as income rises.These goods often serve as status symbols and can include high-end cars, designer clothing, and exclusive services.Unlike necessity goods, luxury items fluctuate with economic conditions, decreasing during downturns.Veblen goods are a type of luxury item where demand increases as price rises, due to perceived prestige.Luxury taxes can be levied on certain high-value goods, affecting demand and government revenue. The Influence of Income on Luxury Goods Consumption Luxury items tend to be sensitive to a person's income or wealth, meaning that as wealth rises, so do purchases of luxury items. As a result, luxury items are considered to show positive income elasticity of demand, which is a measure of how responsive the demand is for a good to a change in a person's income. Conversely, if there is a decline in income, demand for luxury items will decline. For example, demand for large, high-definition (HD) TVs would likely increase as income rises since people have the extra income to splurge on a big TV. During a recession, when people may lose jobs or earn less, demand for HD TVs likely drops. As a result, HD TVs would be considered a luxury item. Luxury items are the opposite of necessity goods or need expenses, which are the goods that people buy regardless of their income level or wealth. Food, water, and household utilities would likely be considered necessity goods for most people. However, eating blue lobster for dinner would be considered a luxury item. Luxury items can include services like full-time chefs or housekeepers, and some financial services used mainly by wealthier individuals. Luxury goods also have special luxury packaging to differentiate the products from mainstream products of the same category. Of course, the definition of a luxury item is somewhat subjective, depending on a person's financial circumstances. For example, one might consider a car a luxury item while another might consider it a necessity. How Luxury Goods Differ From Inferior Goods An inferior good is a good that experiences less demand as a person's income increases. As a result, it has a negative elasticity of demand. For example, cheap, store-brand coffee would likely see an increase in demand when people's income is low. However, when their income increases, the demand for store-brand coffee would decline as people opt for the more expensive, higher-quality coffee. As a result, the store brand coffee would be an inferior good. Luxury items are not inferior goods; instead, they're the goods that people opt to buy when their income increases to replace inferior goods. A luxury good may become an inferior good at different income levels. If a wealthy person becomes wealthier, they might stop buying more luxury cars and start collecting planes or yachts because luxury cars become inferior goods. While a luxury label doesn't always mean high quality, these goods are often seen as top-tier in quality and price. Veblen Goods Explained and the Impact of Luxury Taxes Some luxury products are Veblen goods, meaning demand grows as status is attached. As prices increase, so does demand, because people see them as more valuable. As a result, Veblen goods have a positive price elasticity of demand, which measures the change in demand as a result of a change in price. For example, raising the price on a bottle of perfume can increase its perceived value, which can cause sales to increase, rather than decrease. Certain luxury items may be subjected to a specific tax or luxury tax. Large or expensive recreational boats or automobiles can be subject to a federal tax. For example, the U.S. levied a luxury tax on certain automobiles in the 1990s but ended the tax in 2003. Luxury taxes are considered progressive because they typically only affect people with high net wealth or income. Popular Examples of Luxury Goods in Today’s Market Although luxury items can be different from one person to another, the following items are considered luxury items in an economy: Haute couture clothing and fur coats Accessories, such as jewelry and high-end watches Luggage A high-end automobile, such as a sports car A yacht Wine Homes and estates The Bottom Line Luxury items are non-essential goods valued for their status and prestige, with demand rising faster than income. Often tied to conspicuous consumption, they include high-end cars, designer fashion, and exclusive services, though perceptions of "luxury" vary by income. Some, known as Veblen goods, see demand grow with higher prices. Unlike inferior goods, luxury items may also face luxury taxes that shape consumer behavior and government revenue. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Douglas Curtis and Ian Irvine. “Principles of Microeconomics 4.5: The Income Elasticity of Demand.” LibreTexts, 2023. Congress.gov. “H.R.5835 - Omnibus Budget Reconciliation Act of 1990.” Page 104 Stat. 1388-439. Congress.gov. “H.R.3448 - Small Business Job Protection Act of 1996.” 110 Stat. 1839. Take the Next Step to Invest Advertiser Disclosure × The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Read more Personal Finance Wealth Partner Links Take the Next Step to Invest Advertiser Disclosure × The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.