In economics, a luxury commodity is something that has high fixed costs and relatively low variable costs; its price level reflects these characteristics. In economics, a luxury commodity is a good whose price increases proportionately to income, so that expenses on this good become a smaller proportion of total income. We can call this commodity a luxury product or luxury good in the terminology of economists. A luxury good has certain characteristics which facilitate its acquisition, usually in return for a tax concession or other special economic advantage; it usually tends to be produced in a small geographical area and to yield low productivity. Luxury products have been defined as an object that has high monetary value and little utilitarian value. An object may become luxury slowly by adoption of certain specific standards, such as a comfortable and aesthetically pleasing set of furniture.
The definition of luxury goods is based on the process of diminishing returns to investment, with corresponding reduced welfare. If an improvement in the welfare of the mass is promised, then the prices of the goods become lower over time as the amount of effort required to produce them declines, and the investment reduces to the point where the marginal value of the goods declines. High levels of taxation on luxury goods have been found to reduce consumption and increase production, though this relation is not absolute. Some commodities, such as alcohol, tobacco and drugs, are recognized as luxury goods by law. A distinguishing mark of luxury goods is that they are perceived to be rare, thereby bringing an increased price and thereby a reduction in demand.
Luxury is a term increasingly used to describe non-tangible benefits derived from superior taste, sensation, comfort, cleanliness, proximity to others or some other intangible benefit. There are many people who will pay very high sums for an article of clothing, but the fact that it is branded and made well does not make it a luxury. The value of the brand and the quality of the cloth are important in defining luxury. Similarly, the enjoyment one gets from a superior service (such as driving a fast car or availing of services in a highly sought-after area) does not make the service a luxury. The definition of luxury therefore is the subjective idea of something which is more important than its price tag.