In economics, a luxury good is defined as one with high income elasticity of demand—meaning that as your income rises, your demand for such goods increases more than proportionally. Think of it as treating yourself when you earn more. However, luxury goods also have high price elasticity of demand: when prices go up, demand tends to drop significantly. This happens because luxury goods are non-essential and often have available substitutes. In contrast, necessities (like staple foods) show the opposite behavior—demand stays relatively stable regardless of income or price changes.

We were recently in Belfast, famously known as the birthplace of the Titanic. Buying a ticket for the Titanic—whether first class, second, or even third—was undeniably a luxury. First-class passengers enjoyed lavish amenities that rivaled top hotels of the time, while third class still offered significantly better conditions than most transatlantic options available to working-class travelers.

In economic terms, Titanic tickets exemplified luxury consumption: they were income-sensitive (a privilege of the wealthy) and price-sensitive (out of reach for most). The ship itself was a symbol of status, comfort, and exclusivity—making it a good example for a luxury good in economics.

In a recent post on our Instagram (@dailylifeecon), we explore the aftermath of the Titanic and how it reshaped the transatlantic passenger industry. Don’t miss it!