Commodity

In economics, a commodity is an economic good or service that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.

The price of a commodity good is typically determined as a function of its market as a whole: well-established physical commodities have actively traded spot and derivative markets. The wide availability of commodities typically leads to smaller profit margins and diminishes the importance of factors (such as brand name) other than price.

Most commodities are raw materials, basic resources, agricultural, or mining products, such as iron ore, sugar, or grains like rice and wheat. Commodities can also be mass-produced unspecialized products such as chemicals and computer memory.

In economics, the term commodity is used specifically for economic goods or services that have full or partial but substantial fungibility; that is, the market treats their instances as equivalent or nearly so with no regard to who produced them. Karl Marx described this property as follows: "From the taste of wheat, it is not possible to tell who produced it, a Russian serf, a French peasant or an English capitalist." Petroleum and copper are examples of commodity goods: their supply and demand are a part of one universal market.

Non-commodity items such as stereo systems have many aspects of product differentiation, such as the brand, the user interface and the perceived quality. The demand for one type of stereo may be much larger than demand for another.

The price of a commodity good is typically determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets.

Tags: Business, Economics