Definition
- Luxury good
- A luxury good is a normal good whose income elasticity is greater than one, so the quantity demanded rises proportionally faster than income.
Example
Can you think of an example of luxury good?
Incomes rise 10 per cent and foreign holidays taken rise 15 per cent: an income elasticity of +1.5, above one, so holidays are a luxury.
Test yourself
Can you name the six types of good you can label from income and cross elasticity?