Which economic principle indicates that as income increases, the demand for luxury goods tends to increase as well?

The principle that as income increases, the demand for luxury goods tends to increase as well is associated with normal goods. Normal goods are those for which demand rises as consumer income rises. These goods often include items that are perceived as better quality or more desirable, leading consumers to purchase more of them when they have the financial means to do so.

Luxury goods fall into the category of normal goods; they are more likely to be purchased when consumers have higher disposable incomes. When people earn more, they are not only able to afford basic necessities, but also higher-quality and more luxurious items, which often come at a premium price.

This principle is crucial in understanding consumer behavior and market dynamics, as it helps businesses predict how demand for their products may change with fluctuations in consumer income levels. Being aware of this relationship allows companies to tailor their marketing strategies and inventory management to align with economic trends.