A major determinant of the demand for a luxury good is____________?

Step 1: Analyze the question The question asks for the major determinant of demand for a luxury good. The key phrase is "luxury good."

Step 2: Explain the concept Demand for any good depends on several factors:

• Price of the good itself
• Price of related goods (substitutes and complements)
• Tastes and fashion
• Income of consumers

Goods are classified by how demand responds to income:

• Inferior goods: demand falls as income rises (e.g., garri for some households).
• Normal goods: demand rises as income rises.
• Luxury goods: demand rises more than proportionally as income rises. Income elasticity of demand is greater than 1 (YED > 1).

Step 3: Work through the options

• A. Price of other goods: This matters for substitutes and complements, but it is not the main factor for luxury goods.
• B. Price of the good: This affects all goods, so it is not specific to luxuries. Wealthy buyers of luxury goods are also often less sensitive to price.
• C. Tastes and fashion: This is a factor, but it is secondary.
• D. Income of consumers: Luxury goods such as expensive cars, designer clothing and jewellery are bought mainly by people with high disposable income. When incomes rise, demand rises sharply. When incomes fall, people cut back on luxuries first.

Step 4: Answer The major determinant is the income of consumers, which is option D.

Exam tip: Whenever you see "luxury good," think income elasticity > 1. Luxury goods are tied to income, while necessities are tied more to price and need.