Luxury goods exhibit a higher price elasticity of demand (PED) compared to necessity goods.

Price elasticity of demand (PED) quantifies how responsive the quantity demanded of a good is to changes in its price. Essentially, it reflects the extent to which the quantity demanded will fluctuate in response to a price change. The PED varies significantly between luxury goods and necessity goods due to the differing nature of their consumption.

Luxury goods are items that consumers tend to purchase more of as their income increases. Examples of luxury goods include designer clothing, high-end electronics, and luxury automobiles. Although these items are not essential for survival or basic comfort, they significantly enhance quality of life and social status. As a result, consumers demonstrate a heightened sensitivity to price changes for luxury goods. When the price of a luxury item rises, consumers are likely to reduce their purchases or opt for less expensive alternatives. This behavior leads to a relatively high PED for luxury goods, often exceeding 1, indicating that the quantity demanded is highly responsive to price fluctuations.

In contrast, necessity goods are those essential for survival or maintaining a basic standard of living. Examples include food, water, and basic clothing. Consumers typically continue to purchase these goods even when prices increase, as they cannot easily forgo them. Consequently, the PED for necessity goods is relatively low, often falling below 1. This suggests that the quantity demanded does not change significantly in response to price alterations.

In summary, luxury goods possess a high price elasticity of demand (PED), which means that their demand can shift considerably with price changes. These items, such as designer clothing and luxury cars, enhance lifestyle or social status but are not essential. Conversely, necessity goods, like food and basic clothing, have a low PED, as consumers require them regardless of price changes, resulting in minimal demand fluctuation.