High-End Products: Definition and Their Flexibility

In the realm of economics, the concept of income elasticity provides valuable insights into consumer behaviour, particularly when it comes to luxury goods.

Firstly, it's important to understand that a positive income elasticity indicates a normal good, meaning the demand quantity for such goods increases as consumer income rises. This is particularly true for necessities, where a 5% increase in income may lead to a demand increase that exceeds 5%. However, the demand for necessities remains elastic but less than that of luxury goods, which have an income elasticity of more than 1.

Luxury goods, such as luxury cars, fashion clothes, yachts, watches, jewelry, and more, are not just expensive items but also serve as positional goods, signalling a position or status in society. They are aesthetically designed, made from high-quality materials, and are often limited in availability, making them even more desirable.

Some luxury goods, known as Veblen goods, are unique in that an increase in price may actually increase consumer satisfaction. This is because these items are status symbols, and their high price tag serves as a testament to the buyer's wealth and status.

The income elasticity of luxury goods in Germany, for instance, is typically greater than 1, indicating that demand for luxury goods increases more than proportionally as income rises. While a precise numeric value specific to Germany was not found, the trend suggests a significant increase in demand as consumer income rises.

However, it's worth noting that the definition of luxury items can vary, with perceptions often influenced by income levels. Not everyone agrees on what constitutes a luxury item, making the classification somewhat subjective.

Other expensive items worthy of mention include the 1963 Ferrari 250 GTO, priced at USD70 million, and Leonardo da Vinci's Salvator Mundi, priced at an astonishing USD450 million. These items, while not typically considered luxury goods, demonstrate the extreme end of the income elasticity spectrum, where demand increases dramatically with rising income.

In conclusion, understanding income elasticity provides a fascinating look into consumer behaviour, particularly when it comes to luxury goods. While the definition of luxury items can be subjective, the concept of income elasticity offers a consistent, quantifiable way to understand how these items respond to changes in consumer income.