A relative luxury good is one that is considered a luxury good for a type of customer. However, in another higher income segment, it is a necessity item.
Seen in another way, for a relative luxury good, its classification depends on the personal disposable income or the wealth of the final consumer.
That is, for a person with an average level of income these goods can be considered luxury. However, for an individual with high purchasing power, it is a normal good, or even a necessity.
Traditionally, necessities and luxury goods were sharply separated. However, rising economic well-being across most of the world has made expensive goods more accessible.
This has also been driven by greater access to financing resources such as loans or bank credits.
This democratization of luxury, a product of globalization, has helped to some extent the emergence of so-called relative luxury goods.
In our daily life there are many relative luxury goods. We observe it, for example, in the cosmetics industry, in the fashion sector, in premium food, in entertainment, and even in tourist services.
Price elasticity of a relative luxury good
In microeconomic terms, a relative luxury good has a price elasticity greater than 1 for a consumer’s income level. This means that a change in price greatly influences the demand for the good and is therefore not so necessary.
Alternatively, the relative luxury good may also have a price elasticity of less than 1 for a larger scale of income. This means that the product is very necessary for the consumer, regardless of the price changes that occur.
It follows, therefore, that the level of income directly affects demand. Thus, a commodity may be considered luxury by a low-income individual, but it may be normal for another high-income person.