In economics, a luxury item is an item that has high fixed costs and low variable costs; that is, its price does not rise with the rise in income and its price decreases with the decrease in income. Thus luxury goods are items that have high fixed costs, and their price also tends to increase and decrease with income. In contrast, fixed cost goods such as labor, capital equipment, and property are goods that are purchased on a job-by-job basis. Fixed cost goods can be produced with high volume and consistent supply; whereas variable cost goods, such as petroleum and creditable interest rates, tend to be produced with large volume, but irregular supply.
One of the major indicators of luxury consumption is income. High income tends to make people spend more, andluxury consumption is usually associated with high and increasing income. Hence, goods associated with high and increasing income tend to be luxury items; and goods associated with low and decreasing income tends to be mass produced inferior good items. Thus, luxury items tend to be associated with higher income, higher consumption, and greater elasticity of prices.
Another indicator of luxury is the desire to own and consume a luxury item. Luxury is a desire, and not a need, and so it can be satisfied by owning a mass-produced inferior good, or by saving and buying an expensive and exclusive object. Luxury is therefore not the result of necessity, but of desire. Thus, luxury may be a function of culture and class, but is not inherent in any particular substance. Thus luxury may be defined as the desire for an exclusive, rare, and exclusive object, regardless of its physical reality.