Question

Supercars such as Ferrari and Lamborghini are not normal goods. Instead, they are luxury goods. True or False, briefly explain your answer.

Answer 1

Ans) True

Supercars are luxury goods because the display of a particular branded product brings prestige on the owner apart from any functional utility.

Higher standards of living people tend to buy more luxury items. consumers with not so high income tend to spend their income on necessities having lower positive income elasticity of demand.

As consumer income increases they are likely to spend some of their income on luxuries so luxury goods have higher positive income elasticity.