Economics, 3rd Edition

Necessities versus Luxuries 

Necessities tend to have relatively inelastic demands, whereas luxuries 

have relatively elastic demands. People use gas and electricity to heat their homes and cook their food. 

If the price of gas and electricity rose together, people would not demand dramatically less of them. They 

might try and be more energy-efficient and reduce their demand a little, but they would still need hot food 

and warm homes. By contrast, when the price of sailing dinghies rises, the quantity of sailing dinghies 

sold demanded falls substantially. The reason is that most people view hot food and warm homes as 

necessities and a sailing dinghy as a luxury. Of course, whether a good is a necessity or a luxury depends 

not on the intrinsic properties of the good but on the preferences of the buyer. For an avid sailor with little 

concern over health issues, sailing dinghies might be a necessity with inelastic demand, and hot food and 

a warm place to sleep less of a necessity with a more elastic demand.