What are Luxury Goods - Economics UPSC notes

Luxury Goods is a key concept in economics and is relevant for the UPSC syllabus under topics related to market structures, income inequality, and consumer behavior in Economics (Prelims and Mains GS Paper III) . Here's an overview: What are Luxury Goods? Definition: Luxury goods are goods for which demand increases more than proportionately as income rises, making them highly income-elastic. They are considered non-essential but desirable items that signify higher social status. Opposite of Inferior Goods: Unlike inferior goods, demand for luxury goods rises with an increase in income. Key Characteristics of Luxury Goods High Income Elasticity of Demand: Demand for luxury goods grows faster than income. For example, if income increases by 10%, demand for a luxury item might increase by 20%. Non-Essential but Desirable: These goods are not necessities but are purchased to enhance lifestyle or status. Prestige Pricing: Higher prices can make these goods more desirable due to the Veblen effect …