Luxury goods are the ones that have are the ones that have high income elasticity- greater than 1 So we relate them with income elasticity of demand What about price elasticity of demand? let’s say if price increases the quantity demanded increases too - that is the elasticity would be a positive number - could you consider it a luxury good too? let’s say a really expensive car
florinpop Wrote: ------------------------------------------------------- > Luxury goods are the ones that have are the ones > that have high income elasticity- greater than 1 > > So we relate them with income elasticity of > demand > What about price elasticity of demand? let’s say > if price increases the quantity demanded increases > too - that is the elasticity would be a positive > number - could you consider it a luxury good too? > let’s say a really expensive car I do not think a scenario which you describe would even be possible since demand is always downward sloping. (or vertical in the the most extreme case of perfect inelasticity where Qty demanded stays the same as price increases)
i remember reading a thread about this… can’t find it now i think it is a giffen good… i remember something about really high quality goods; as their price decreases they are valued less i.e. as a bentley becomes cheaper it is less sought after and quantity dd decreases.
To clarify, what i meant is that Luxury good are always related to income elasticity not price elasticity. However i founf this article which indicates my assumption of the demand curve was incorrect: http://en.wikipedia.org/wiki/Price_elasticity_of_demand However, i think giffen goods are realy more to do with the perception of value rather than a luxury good. But what do i know, econmoics is not exactly my strong point
Florinpop, the good you’re talking about is a veblen good. These are goods that have a higher demand because of the exclusivity created by the high price. A giffen good is a good that is inherently cheap. As the price of that good rises, it is getting more expensive, but at a slower rate than substitutes for that good. So even though the price is rising, the demand increases. Upward sloping demand curves do exist, but it’s not something to worry about. They’re economic paradoxes created by professors so they can research something. Nonetheless, they are very interesting concepts. I highly doubt you’ll be tested on this stuff for the CFA though.
got it thanks for the help.