In economics, a luxury item is an item of great value that usually requires a higher initial investment than other goods or services of similar value. In simple terms, luxury is a good that becomes a better value over time relative to other goods and services of the same type. Economists define luxury as “the good that gives extra value to a person in return for his or her effort”. In other words, luxury is the factor that increases not only as a result of increased demand, but also as a result of the increased ability to demand luxury.
Luxury can be defined by its scarcity – there are not enough luxury items of a given type in the marketplace. Thus, the value of such an item rises with demand. An increase in demand for luxury items leads to the rise in their value because their supply is limited. This process of increasing demand and lowering supply creates a surplus, or pool of value, among the buyers of luxury items. The pool of luxury items, like Veblen goods, can increase as more people with money seek to acquire them.
Luxury, unlike necessity, is not derived from necessity. Luxury is created through aesthetic beauty, superior taste, unique personality, originality, or unique situation. These things are what distinguish one luxury item from another, creating an important distinction between luxury and pauper. Pauper, by contrast, is derived from necessity and represents something inferior in comparison to luxury. Luxury, then, is not the pinnacle of human existence, but the pinnacle of individual liberty and the ability to enjoy life to the fullest.