Luxury in economy refers to the consumption of goods and services whose quality and design far exceed what is necessary to satisfy an essential need.
Luxury is characterized by its high price, quality and exclusivity. Given its high price, it is usually only accessible to high-income consumers.
Thus, for example, a dinner with lobster in a restaurant with more than 4 Michelin stars exceeds what is necessary to satisfy hunger, it is an enjoyment, a search for the exclusive.
How to identify a luxury good or service
To identify a luxury good or service in economics, we look at its elasticity. These goods and services are characterized by a high income elasticity. As a person’s income increases, the consumption of these goods increases in a larger proportion.
Advantages of the consumption and production of luxury products
Luxury is a reflection of the wealth that is generated in a country and can have positive effects on the economy such as:
- It encourages the development of innovation, art and design.
- It can be a relevant source of employment and generate income for the workers of the companies that belong to this industry.
- Drive creativity and ingenuity to develop products to attract the attention of customers with high expectations.
- It allows a greater collection of taxes that can be used to improve the distribution of income.
Disadvantages of the consumption and production of luxury products
It can also have negative effects on the economy:
- Some critics consider that it causes a waste and squandering of resources.
- When your production takes space from those most in need. For example, fields are destroyed or species are extinguished in order to satisfy superfluous needs.
- It highlights people’s income differences and can create a sense of social injustice.
- False "needs" are created that only lead to unnecessary consumption.