How does an increase in consumer income typically affect consumer spending on luxury goods, considering the income effect and its implications as an economic indicator?

When consumer income increases, people generally have more money to spend, which often leads to higher spending on luxury goods. This is because luxury items, like designer clothes or fancy cars, are not necessities; people buy them when they feel financially comfortable. The income effect explains that as income rises, the demand for these non-essential goods increases since consumers feel they can afford to treat themselves. For example, if someone gets a raise, they might decide to purchase a new smartphone that they previously considered too expensive. This increase in spending on luxury goods can be an important economic indicator, suggesting that consumers are confident in their financial situation and the economy is doing well.