A luxury item is not necessary to live, but it is deemed as highly desirable within a culture or society. As luxury goods are expensive, wealthy people are disproportionate consumers of luxury goods. This is because the less wealthy a person is, the higher a percentage of their income they need to spend on goods they need to live. Because of this luxury goods are often examples of conspicuous consumption, which is the purchase of goods mainly or solely to show off one's wealth.

Breaking Down Luxury Item

Certain luxury items may be subjected to a specific tax or "luxury tax." Large or expensive recreational boats or automobiles can be subject to a federal tax. For example, the U.S. levied a luxury tax on certain automobiles in the 1990s but ended the tax in 2003. Luxury taxes are considered progressive because they typically only affect people with high net wealth or income.

Luxury items have income elasticity of demand, which means as people become wealthier, they will buy more of such goods. In the same way, if there is a decline in income, demand for luxury items will decline.

A luxury good may become a normal good or even an inferior good at different income levels, which means if a wealthy person gets wealthy enough, they may stop buying increasing numbers of luxury cars in order to start collecting airplanes or yachts (because at higher income levels, the luxury car would become an inferior good).

Some luxury products purport to be examples of Veblen goods with positive price elasticity of demand. For example, raising the price on a bottle of perfume can increase perceived value, which can cause sales to increase, rather than decrease.

Luxury items can also refer to services, such as full-time or live-in chefs and housekeepers. Some financial services can also be considered luxury services by default because persons in lower-income brackets generally do not use them. Luxury goods also have special luxury packaging to differentiate the products from mainstream products of the same category.

Luxury Items and Quality

Although the designation of an item as a luxury item doesn't necessarily connote high quality, such goods are often considered to be on the highest end of the market in terms of quality and price. Such items might include haute couture clothing, accessories, and luggage. Many other markets have a luxury segment, such as automobile, yacht, wine, bottled water, coffee, tea, foods, watches, clothes, and jewelry.