Luxury goods economics is a field of study that studies the role luxury items play in society. It examines what drives people to purchase these items and what happens after they do so.
Luxury goods refer to non-essential, costly items purchased to enhance one’s standard of living. As such, they have high income elasticity of demand – meaning their quantity increases with an increase in a person’s disposable income.
Scarcity
Luxury goods economics emphasizes scarcity as a key element. When something is scarce, its status increases – meaning only those who want to purchase it can.
Though it may seem counterintuitive, restricting production is a fundamental principle of business. By restricting output, brands avoid the high costs and waste that overproduction can entail.
Furthermore, scarcity can be a powerful marketing strategy, as evidenced by Supreme’s famous one day site-wide sale. They generate massive volumes of pre-orders in record time due to their scarcity strategy.
These products possess a high income elasticity, meaning their demand changes directly with consumer income. When income levels rise, demand for luxury items rises; however, during recessionary times their availability decreases.
Quality
Luxury goods economics emphasize superior materials, design and craftsmanship. These items are created by hand in artisan workshops with more skilled labor than mass-produced items require.
Consumers aspire to own luxury items as they symbolize wealth, sophistication, and status. Therefore, they are willing to pay a higher price for them.
However, luxury goods do not always convey a high quality image. While new and expensive items may initially be viewed as such when first released, perceptions can shift over time as income levels and technology improve.
Therefore, the economics of luxury goods can be complex and misleading. Some brands have been known to increase production without reducing quality while relying on customer loyalty as a source of profit.
Aesthetics
Aesthetics is a branch of philosophy that examines aesthetics and taste. It also incorporates axiology (the study of values and value judgments).
A luxury good is an item purchased to enhance one’s standard of living. These goods often exhibit high income elasticity of demand, meaning their value increases or decreases depending on whether people’s income levels rise or fall.
Contrastingly, necessity goods or need expenses are items people purchase regardless of their income level or wealth. Food, water, and utilities used for daily living could all be classified as necessity items.
Aesthetic theories address questions specific to each designation: whether artworks can truly be considered aesthetic objects; how best to reconcile aesthetic judgments with our perceptual basis for them; and how best to capture the tension between an aesthetic attitude and a practical one. Common answers to these inquiries rest either on claims about immediate graspability of aesthetic properties or on formal theories of aesthetic value.
Social status
Social status is the degree of honor and prestige one is perceived to have within society, which can be determined by factors such as one’s profession, clothing choice, car status, political affiliation and postcode.
One can assess one’s social standing through one’s relationships with others in society. In some cultures, this may include marital status but could also include hobbies or other interests.
Humans become well-aware of their social status from an early age and its implications on their lives. A boost in status can boost our self-worth and may even have positive effects on mental health.
People may pay a premium for luxury goods that demonstrate their social status, known as conspicuous consumption. People may make these purchases to display wealth, demonstrate that they are attractive or gain access to events which would otherwise be impossible.
