If EDy is less than 1, demand is considered to be income inelastic. Luxury items usually have higher income elasticity because when people have a higher income, they don't have to forfeit as much to buy these luxury items. As an example, consider what some consider a luxury good: vacation travel.
Keeping this in consideration, what is the definition of luxury goods?
Large or expensive recreational boats or automobiles can be subject to a federal tax. 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.
Is a car a luxury good?
Luxury goods are consumption goods that are expensive, ornamental or otherwise difficult to obtain and are typically accessible only to the wealthy. Luxury goods can be functional, like cars, or nonfunctional, such as jewelry. They often indicate status.
What is the elasticity of luxury goods?
A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in demand. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.