Luxuries+vs.+Necessities


 * A luxury good is a good for which demand increases as income rises, compared to a "necessity good" for which demand does not increase as income rises. Some examples of luxury goods are diamonds or nice vacations. They are things that are desirable but not necessary in a shortage of money. Necessities are goods that are critical for everyday life. Some examples of these could be toothbrushes and toilet paper. People always need necessities, and there is not a large increase in sales when prices drop or income rises.**


 * Necessities differ from luxury goods because while the demand for necessities remains relatively constant, the demand for luxury goods fluctuates depending upon income and prices. Luxury goods have high income elasticity of demand which means as people become wealthier, they will buy more and more of the luxury good. This also means that if there was a decline in income, its demand will drop. With a shortage of income, less people are willing to buy expensive and unnecessary goods. However, necessities are always important.**

This diamond necklace is a luxury good, and these toothbrushes are examples of necessities.

media type="youtube" key="vN9BPgm-hHA&hl=en&fs=1&color1=0x5d1719&color2=0xcd311b" height="344" width="425" This is a Luxury.

media type="youtube" key="9ogQ0uge06o&hl=en&fs=1&color1=0x5d1719&color2=0xcd311b" height="344" width="425" This is an example of Necessities.

D Ephraim has just won the lottery. He is about to buy a Mercedes. The other day he was going to buy one but he didn't have the money but he bought some tissue that he needed for his house. Which is the necessity and which is the luxury?
 * Sample Question**:

The Mercedes is the luxury and the tissue is the necessity.

Links to Other Websites [|Economics and Luxury vs Necessitites] [|U of T Economics paper] [|Essentials of Economics]